Influence of SWIFT on the Hegemony of the US Dollar

SWIFT (the Society for Worldwide Interbank Financial Communications) was founded in 1973 to establish a secure international transaction processing system and is currently the most widely used interbank messaging system in the world. On February 26^th, 2022, an agreement among SWIFT members led by the United States was made to ban several Russian banks from accessing the SWIFT system in retaliation to the invasion of Ukraine. Since then, China and Russia, along with other BRICS (Brazil, Russia, India, China, South Africa) members have made efforts to create a system alternative to SWIFT. Substantial efforts have been made by scholars in articles released by the Bank of International Settlements and the Research and Development Corporation to understand the potential impact of a new system as dollar reserves fall under the current system. In our study, we use SWIFT’s official website to collect empirical data on the relationship between the use of SWIFT FIN (financial Information) Messages and shares of both reserves. We find that FIN messages rise as shares of US Dollar reserves decline and Chinese RMB reserves rise. While there is a significant correlation to be found, we explore other factors to determine the mechanism of a causal relationship such as SWIFT transactions regarding trade, securities, treasury, systems, and payments. Additionally, we look specifically at the Asia and Pacific region for SWIFT interactions. We argue that the rising SWIFT transactions in this region are what causes this rise in alternative currencies to the US Dollar under the SWIFT system.