What If South Africa’s Access to SWIFT Was Under Threat?
What is the level of risk that South Africa might face exclusion from the global banking SWIFT system?
The South African Reserve Bank suggests that this threat is directed mainly at specific individuals, rather than the country as a whole. Nonetheless, this issue was significant enough to prompt Finance Minister Enoch Godongwana to discuss it in a [recent] closed-door meeting with banking officials.
Read: SA treasury, banks worry over potential loss of SWIFT, reports Sowetan
Listen/read: What are the consequences if South Africa loses access to the SWIFT payment network?
The SWIFT [Society for Worldwide Interbank Financial Telecommunication] system is vital for international trade. It acts as a communication channel between banks, ensuring secure transaction processing. Exclusion from SWIFT hinders individuals’ ability to perform cross-border transactions.
What led us to this point?
A proposal in the US Congress by Representative John James aims to reevaluate US-South African trade relations. While it does not explicitly advocate for a ban on SWIFT, historical trends indicate potential implications, according to Faadil Moti, CEO of payment firm 80eight.
Such restrictions could start subtly and escalate quickly, resembling the situations faced by Russia and Iran. This comes as South Africa seeks to remove itself from the Financial Action Task Force (FATF) grey list by improving measures against money laundering and terrorism financing.
The US holds significant power to enforce compliance among its trade partners, utilizing tariffs, sanctions threats, and its control over the SWIFT system.
Read: South Africa edges closer to leaving the grey money list in October.
Prepare for contingencies
In this podcast, Moti discusses alternatives to SWIFT, such as Russia’s SPFS and China’s CIPS, albeit these options are slower and viewed as less secure. He also mentions the potential for the Pan-African Payment and Settlement System for trading, although it, too, is slower.
“I believe the most scalable solution is a hybrid infrastructure that connects traditional payment systems with digital assets, stablecoins, and tokenized liquidity layers in the near future,” Moti suggests.
For certain transactions—like cross-border remittances—mobile money and stablecoins are becoming increasingly popular in Africa.
South Africa cannot afford to be passive regarding the SWIFT threat; it must develop contingency plans and alternative strategies, emphasizes Moti. This involves establishing regulatory guidelines for the use of stablecoins in international payments.
Read:
Digital payments in Africa: Can regulation keep pace with rapid innovation?
Yellow Card, Visa agree to accelerate stablecoin adoption in Africa.
“Over the past 18 months, South Africa’s FATF grey listing has affected various transactions. For example, individuals using their allowances to send money abroad for cryptocurrency purchases have faced restrictions on banking options. Since the grey listing, numerous offshore banks labeled such transactions as high-risk or outright banned them.”
Moti insists that while South Africa’s economy has shown resilience in the past, companies should continue regular operations while being aware of the risks if relations with the US deteriorate.
“Being placed on the grey list was a valuable learning experience for South African institutions, urging them to enhance controls against money laundering and terrorism financing, which is crucial for aligning with international standards and improving trade flow.
“However, creating alternatives is not just about innovation; it’s also about adoption. South Africa is ideally positioned to embrace these alternatives—pending regulatory approval, of course.”
South Africa is not alone in facing challenges from the US. India has encountered 50% tariffs on many products entering the US and risks further tariffs for purchasing oil from Russia. This illustrates that displeasing the Trump administration can result in significant trade consequences—India is actively seeking strategies to mitigate these adverse effects.
In this podcast, Moti provides an overview of multiple possible futures and the available alternatives, making it a worthwhile listen.
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