Sanctions eroding USD's global reach

Business Recorder

21-07-2025

History may hold US President Donald Trump responsible for undermining the pervasive influence of his country in several international agencies dating back to when the US was the sole superpower - from 1989 subsequent to the collapse of the Soviet Union roughly around 2017: World Trade Organisation (WTO) by raising tariffs on all imports into the US, North Atlantic Treaty Organisation (insisting on greater equality in contributions by member countries and threatening to revisit Article 5 which stipulates that all member countries will come to the assistance of a member if attacked), and International Atomic Energy Agency (by bombing nuclear sites in Non-Proliferation Treaty signatory Iran thereby taking away the protection implicit to signatories).
But what President Trump cannot be solely held responsible for is the global momentum towards de-dollarisation mainly due to the overuse of sanctions by administrations dating back to 2000, including his own first term. Sanctions have become the tool of first resort for American presidents, which has compelled heavily sanctioned countries to consider trading in a currency other than the dollar through a messaging/transfer system that is not hostage to US-led sanctions.
The Society for Worldwide Interbank Financial Telecomm unication (SWIF T) was founded in 1973, essentially to replace telex, and has since become a global provider of secure financial messaging services. It is headquartered in Belgium and is a member owned cooperative connecting 11000 banks, financial institutions and corporations in more than 200 countries/territories and is overseen by G-10 banks — Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, UK, and USA – countries defined as the West, unequivocally led by the US.
In 2006-07, SWIFT allowed financial institutions to comply with FATF SR VII (fighting terrorist financing by mentioning more detailed information about the payment ordering customer). SWIFT then began to liaise closely with Financial Action Task Force to combat money laundering and terror related financing by providing information and data and worked with the US Treasury's terrorist finance tracking program.
In 2010 financial institutions began to include underlying customer information; and to comply with sanction laws, increasingly used by the US-led West as a foreign policy tool.
However, SWIFT maintained that compliance rested with financial institutions and competent authorities and that it did not arbitrarily select which jurisdiction's sanctions to follow but because it is incorporated in Belgium it complies with related European Union regulation, confirmed by the Belgium government.
In 2012, twenty-nine years after SWIFT was founded, it's framework was reviewed, and a SWIFT Oversight Forum was established in which the G-10 banks were joined by ten other central banks from major economies: Reserve Bank of Australia, People's Bank of China, Hong Kong Monetary Authority, Reserve Bank of India, Bank of Korea, Bank of Russia, Saudi Arabian Monetary Agency, Monetary Authority of Singapore, South African Reserve Bank and Central Bank of the Republic of Turkey.
The influence of the Bank of Russia, sanctioned by the US, is non-existent, given that Western banks have frozen the 300 billion dollars of Russian reserves they held and appropriated the interest and on-lent it to Ukraine.
Notwithstanding SWIFT's claims of neutrality three subsequent decisions allowed the US-led West to determine which country or entity was to be sanctioned, and the selection in at least three cases, notably Iran, North Korea and Russia, mirrored US foreign policy thrust.
In 2012, pursuant to international and multilateral action to intensify financial sanctions against Iran, EU regulation 267/2012 was passed – a regulation that prohibited SWIFT from providing service to EU sanctioned Iranian banks. In March 2016 SWIFT restricted access of North Korean banks, reportedly due to UN sanctions and concerns about their role in illicit activities.
And in 2022, two days after the Russian invasion of Ukraine, at Ukraine government's request, SWIFT disconnected all designated Russian entities and their Russian based subsidiaries/entities as well as Belorussian and the country's designated subsidiaries from SWIFT Network in compliance with the EU Council Regulation (765/2006).
Today 1400 financial institutions in over 100 countries use CIPS which relies on SWIFT's messaging service for over 80 percent of its transactions.
It uses SWIFTs standard for syntax in financial messages as those formatted to SWIFT standards can be read and processed by many well-known financial processing systems, whether or not the message travelled over the SWIFT network. Be that as it may, due to digital real time transfer of funds, SWIFT is unlikely to remain the primary source of money transfer for long.
China overtook the US in purchasing power parity (PPP) nine years ago in 2016, and by 2022 the International Monetary Fund (IMF) rated the Chinese economy in PPP terms to be 23 percent larger than the US, the World Bank rated it 19.8 percent larger than the US and even the CIA considered China larger by 16 percent.
No doubt fully cognizant of its growing economic power, in 2015 Peoples Bank of China launched a Cross Border Interbank Payment System (CIPS) to (i) facilitate international Renmibi transactions; (ii) provide real time clearing and settlement; and (iii) operate independently and alongside SWIFT. It is a matter of time that with the rising rivalry between China and the US, CIPS may delink from SWIFT sooner rather than later.
In 2021 Shaikh Muhammad Shariq, Chief Representative of the National Bank of Pakistan, while addressing the Pakistan Investment Forum and the Cross-border E-commerce Conference held in Pakistani Embassy Beijing noted that 'ICBC and Bank of China, Karachi branches are providing CNY clearing & settlement services in Pakistan.
ICBC Karachi branch has also obtained the direct participation qualification of the first cross-border CNY clearing mechanism of CIPS in South Asia to facilitate and ensure quick and smooth CNY clearing to improve bilateral trade.'
Another emerging platform, BRICS (Brazil Russia India China South Africa), has begun talks on replacing the dollar and developing an alternate payment system bypassing SWIFT and reducing reliance on Western financial institutions. This demand is not only from the sanctioned countries but also other countries grappling with Trump tariffs, demand to curtail economic and trade relations with China and last but not least due to the ongoing de-dollarization of the global economy.
In 2021, the Atlantic Council concluded that sanctions have a poor record, rarely change a target's behaviour and often generate negative unintended consequences, and urged US policymakers to focus on whether sanctions are likely to produce the desired result rather than simply serving as a tool to signal displeasure. That exhortation has yet to resonate with the Trump administration and the threat of punitive sanctions against Russia in 50 days, unless it agrees to the terms of a ceasefire dictated by the US, would generate secondary sanctions (defined as those countries that continue to trade with Russia).
Neither Russia nor its major trading partners, China, Brazil and India, appear to be concerned with China's s Xi Xinpeng dismissing the threat by stating that China would deepen its ties with Russia.
To conclude, Pakistan's trade with Russia is less than one billion dollars while our trade with the US is around 3 billion dollars, less than 4 percent of the sum of our exports and imports, however the US exercises tremendous influence over all multilateral institutions (barring the Infrastructure Bank set up by China) – institutions from which Pakistan borrows heavily to avert the existing looming threat of default (ironically since 2019 even China has shown a reluctance to extend rollovers to Pakistan without being on a rigidly monitored IMF programme) and hence the threat of secondary sanctions by the US are going to play a key role in the country's decision to trade with Russia.
Copyright Business Recorder, 2025