Russia is ditching the dollar for gold and could dump the age-old international banking system, SWIFT. This is perhaps in preparation for an increase in strained ties with the U.S. Putin though says this is an effort to set his people truly financially free.
The country is not only testing SWIFT alternatives, but it is building its very own autonomous internet. Russia aims to free Runet, its domestic internet from the global network, allowing disconnecting itself from the internet whose good portion is U.S-owned.
From SWIFT to SPFS
Already, The Central Bank of Russia is moving from SWIFT to its Russian equivalent known as SPFS. It was created in 2014 when the U.S threatened to kick Russia out of the SWIFT system through sanctions. The system successfully executed its first transaction in 2017 and now has over 400 financial institutions in its network.
But that is not the only chess move. It is now seeking allies willing to clap back on the US’s increasingly muscular stance against their sovereignty. Russia has found an expected friend in China, and some banks from Russia are now using China International Payments System (CIPS). The CIPS is China’s SWIFT equivalent, and it will help the two countries increase the efficiency of operations between them.
Russia is, of course, hoping that more Chinese banks will hop onto SPFS, to “further boost bilateral trade,” a Russian official said.
What is the SPFS?
SPFS is an acronym for the system for transfer of financial messages, and it makes and processes Unified Formats of Electronic Banking Messages or UFEBS documents and MT files as well. While 300 Russian banks have welcomed it, there is dissension too, with other banks preferring international SWIFT. Some banks favor SWIFT because they do not want to undergo the rigors the new system’s connection and terminal installation to their network and the regulation implementation. SPFS has integrated security measures that slow down its transactions and increases its financial costs too.
The system’s message cost between 1.5 – 2.5 Russian rubles each or EUR 0.022 to 0.036. The system also supports minimal financial messages, so turning it to full-scale solution could be a future prospect. SPFS other disadvantage is that it processes transactions on weekdays during business hours only. The difficulties of connecting the Russian SWIFT to a bank may also lug for at least a year and a half before transactions can be made.
The Blockchain Solution
Russia’s central bank has therefore planned to transfer SPFS payments to blockchain. The likely candidate could be Ethereum to help stem the numerous attacks and hacks the SPFS has been facing. There has been no official statement made about the move, but if the SPFS system were to run on the blockchain, it would do fantastic things for blockchain’s mainstream adaptability goal.
The Ripple Advantage
Ripple has a real-time gross settlement system (RTGS) that works like a charm, that could do a lot of good for the Russian bank system. This platform has kept its stability amidst 35 million global transactions. Ripple can move 1,500 TPS while Ethereum can only do 15 TPS on light activities—otherwise, it slows down to less than 10 TPS as transactions clog. Bitcoin is still far behind at 3-to-6 TPS.
Furthermore, Ripple is energy efficient because it uses a proof of correctness as consensus and not the intensive proof of work protocol. It enables direct and near instant cash transfers between parties. It can also handle all sorts of currencies from crypto to gold to fiat and airline miles. The platform significantly lowers not only speeds of transactions but their costs as well.
An increasing number of banks are taking to Ripple and though it lags SWIFT, the network advantages are amassing massive use case adaptations. Meanwhile, Ethereum is quickly catching up as it hops as they plan to shift from a Proof-of-work to a proof-of-stake system for better efficiency.