Members of the Asian Clearing Union (ACU) – a nine-strong group of central banks including those of India, Pakistan and Iran – are to launch a new cross-border financial messaging system in the coming weeks, as an alternative to the main existing international network Swift.
According to officials from Iran – which currently chairs the body – the members of the bloc agreed at a meeting in the Iranian capital Tehran on May 24 that they would set up the new system within a month.
“The [ACU] countries decided to have a customized system for themselves, considering that Swift is not available to all countries and given that it has its own costs,” said Central Bank of Iran deputy governor Mohsen Karimi, in comments reported by the Iranian state-owned Fars news agency.
That was a veiled reference to the fact that Iranian banks are excluded from the Swift network due to international sanctions. It is the not the only country to be blocked – Russia and Belarus are also barred from using the Swift system.
Such networks are vital facilitators of international trade as they allow banks to communicate accurately and securely with each other on money transfers and other instructions.
The Russian connection
The latest ACU initiative mirrors what Iran has already been doing on a bilateral basis with other countries.
In particular, diplomatic, military and economic ties between Iran and Russia have grown closer since President Vladimir Putin’s invasion of Ukraine in February 2022, which left Moscow far more isolated on the international stage. The two countries have been seeking ways to bypass sanctions by, among other things, setting up a new bank messaging system and reducing the use of U.S. dollars in their bilateral trade.
That appears to have been successful, with Russian deputy prime minister Alexander Novak telling a recent press conference in Tehran that 80% of Russian-Iranian trade was now being conducted in their national currencies, the rial and the ruble.
Their banks have also been expanding. In mid-May, it emerged that Russia’s second largest bank VTB had opened an office in Tehran, becoming the first Russian bank to do so. In return, Iranian officials have said two of their country’s banks are planning to open branches or offices in Russia.
Iran now wants to try and develop similar new financial arrangements with its other trading partners around Asia.
Speaking at the ACU meeting in Tehran, Central Bank of Iran governor Mohammad Reza Farzin claimed that dropping the dollar would help to protect member states’ foreign exchange reserves while still enabling effective settlement of bilateral trade deals.
Farzin said the organisation was also planning to admit new members and diversify the range of currencies it endorses for payment settlements to help the de-dollarization campaign. The organization currently focuses on trades using the dollar, euro and yen.
Belarus and Mauritius have both applied for ACU membership. It was also notable that earlier in the month Farzin invited his Russian counterpart Elvira Nabiullina to attend the ACU summit.
Despite the difficulties caused by international sanctions, Iran continues to trade with around 150 countries around the world, with its most important trading partners including China, Iraq, Turkey and the United Arab Emirates.
Iran’s economy minister Ehsan Khandouzi recently said that less than 10% of Iran’s international trade was now conducted using the dollar, down from closer to 30% two years ago.
Earlier this month, Iran’s vice president Mohammad Mokhber held a meeting in Tehran with Vietnam’s minister of public security General To Lam at which he told his visitor that Iran was also keen to use national currencies in its trade with Hanoi, saying such a move would encourage more bilateral business.