China has launched its China International Payment System (CIPS), which is intended eventually to provide cross-border transactions denominated in its own currency, the Yuan or Renmimbi. Why couldn’t China, and international Renmimbi users, simply rely on the already existing and well-established telecommunication system — the Society for Worldwide Interbank Financial Telecommunications (SWIFT) — which has functioned as a global network for bank transactions for over forty years?
To understand China’s CIPS initiative requires a closer look at how specialized financial telecommunications are embedded in global power structures.
Corporate trade and investment generate enormous volumes of financial data to accompany transactions of many kinds. As U.S. businesses moved into transnational markets throughout the postwar decades, they turned to big banks to help them exchange payment data across national jurisdictions. Some leading U.S. banks addressed this opportunity by developing proprietary computer systems and linking to their corporate customers. A more encompassing option was established in the early 1970s through SWIFT, a global system for sending and receiving instructions about payments and other financial transactions. No actual money transits the network: the money itself is sent via separate electronic funds transfer networks. By standardizing the format for such messages and winning over a growing fraction of international financial institutions, however, SWIFT surpassed individual banks’ proprietary systems.  Today, nearly 11,000 financial institutions and corporations located in over 200 countries use SWIFT to exchange millions of messages each day. SWIFT has grown into an essential infrastructure, not only of international finance but also world trade and investment.
One might think that such a mechanism would be above controversy, in that it provides only a technical means for conducting cross-border financial exchanges; but one would be mistaken. Politics has impinged continually on the network. This reflects its unbalanced control. (more…)