It's time to stop staring into the headlights and respond to the fact that Canada is being eyed as a choice morsel by a much larger predator: our former ally the United States of America. In President Trump's very own words, he wants to use "economic force" to join Canada and the United States together. In anticipation of the U.S. turning its economic might against us, we need to locate all the ways in which our access points to various crucial financial networks are controlled by this predator, and switch those dependencies off, quickly, before they are used to hurt us. One of our most glaring dependencies is the SWIFT network.
Banking and payments run on networks. And network users tend to coalesce around a single dominant network, like SWIFT or the Visa and MasterCard networks. Which leaves whomever controls the dominant network, often the U.S, with tremendous power over all the network's other users. If Canada can reduce our exposure to some of these networks now, then we can't be exploited by the Trump regime down the road to weaken us economically, sap our strength, and threaten to take our resources or annex us.
I've already written about one point of failure: our dependency on the U.S.-controlled MasterCard and Visa card networks. Canada has enjoyed huge conveniences by being connected to the U.S. card networks. However, if Trump were to suddenly cut off our access, Canadian credit cards would be rendered ineffective in one stroke, throwing us into chaos.
The good news, I wrote back then, is that our MasterCard/Visa dependency can be solved by building a domestic credit card system, underpinned by Interac, our made-in-Canada interbank debit network. With a domestic fall-back in place, the threat of a Trump disconnection would no longer loom over our heads. Canada wouldn't be doing anything unique. All sorts of nations have their own indigenous credit card systems, including India, Indonesia, Brazil, France, and Japan.
The next chokepoint we need to address, and quickly, is Canada's dependence on the SWIFT network. Most Canadians don’t realize that SWIFT isn't just an international payment tool. It is deeply embedded in our domestic financial system, too.
What is the SWIFT network? Payments are really just synchronized updates of bank databases. A paying bank subtracts numbers from its database while the receiving bank credits its own. To initiate these updates, banks need to communicate with each other, which is where SWIFT comes in. Think of SWIFT as WhatsApp for bankers. It's a highly secure communications network that banks can use to coordinate bank-to-bank payments, otherwise known as wire transfers, between each other on behalf of their customers, using specialized financial languages like ISO 20022 or FIN.
The SWIFT network, owned by the Society for Worldwide Interbank Financial Telecommunication, a non-profit based in Belgium, has over the years become the global standard for banks to signal cross-border database updates. There is currently no alternative. Decades ago, everyone gravitated toward using the SWIFT network for international payments; so that's where a banker has gotta be.
Canada's SWIFT exposure is especially problematic. Many of the world's largest nations only rely on the SWIFT network for international payments; they do not use SWIFT for domestic payments. For security reasons, these nations have built their own bespoke messaging networks and require their banks to use the domestic network for making within-country wires. For example, India has the Structured Financial Messaging System (SFMS), the U.S. uses FedLine*, and Japan has the Zengin Data Telecommunication System.
Yet a group of smaller countries, including Canada, also rely on the SWIFT network for domestic payments. The UK, Australia, and South Africa are part of this group, too. (I wrote about this domestic reliance a few years ago, if you want more details.) What it boils down to is that if a Toronto-based customer of Royal Bank wants to wire $1 million to a Calgary-based customer of TD Bank, it is the SWIFT network that conducts the communications necessary to complete this within-Canada wire payment.
That is, our domestic payment system is fully reliant on a piece of Belgian infrastructure. And this domestic reliance is a huge weakness.
Cutting countries off from SWIFT has become one of the U.S.'s standard tools for disciplining enemies. Over the years North Korea, Iran, and Russia have all undergone it. Being de-SWIFTed isn't a killing blow, but it makes it much tougher for the offending nation's banks to interact with counterparties to make payments. Without SWIFT, bankers fall back on ad hoc networks of fax machines, email, and telex. Efficiency is replaced by clunky, error-prone workarounds.
In 2025, Canada suddenly finds itself in the same boat as North Korea, Iran, and Russia: we are all U.S. targets (or is Russia about to become a U.S. friend again?) And so Canada faces a genuine threat of being de-SWIFTed. Some of you are thinking: "But wait, JP. SWIFT is a European-based platform. As a liberal democracy, Europe is on Canada's side. They would never allow us to be cut off, right?"
Yes and no. The U.S. market is far bigger than the Canadian market. Given a U.S. ultimatum between disconnecting Canada's banking system and facing U.S. punishment, SWIFT and the Europeans may very well choose to take the path of least resistance and cut Canada off.
A potential European betrayal is precisely what happened to Iran when it was severed from SWIFT in 2018. Recall that the U.S., Europe and other partners had signed a nuclear deal with Iran in 2015 whereby Iran agreed to cease its efforts to get the bomb in exchange for a cessation of western sanctions. Trump reneged on the deal in 2018, enraging the Europeans, who wanted to continue honoring it. The U.S.'s 45th president began to pressure SWIFT to remove Iran from its network, threatening sanctions and travel bans on SWIFT execs. At the time, I thought SWIFT might resist Trump's pressure. Europe remained supportive of Iran, after all, and the EU's "blocking statute" makes it illegal for EU firms like SWIFT to comply with American sanction demands. But Europe caved and Iran was quietly unplugged from SWIFT.
In short, Canada, like Iran, can't rely on Europe to uphold its SWIFT access.
As I said earlier, a de-SWIFTing is doubly serious for Canada. Not only would it sever our banks from the sole communications network through which they can make foreign payments. We would also lose our ability to make local wire payments in Canadian dollars. Need to pay $500,000 by wire to close a house purchase? Too bad. It won't go through.
For those interested in visuals, the chart below illustrates our SWIFT dependence. Note how all arrows pass through the SWIFT network:
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| How a Canadian wire transfer works: When a Canadian bank (i.e. the "instructing agent") makes a wire payment to another Canadian bank (the "instructed agent") on behalf of a customer, it starts by initiating a PACS message. This message is sent to the SWIFT network, which notifies Lynx, Canada's high value payments system. All Canadian banks have accounts at the Bank of Canada, our nation's central bank. Lynx's role is to debit the central bank account of the first bank and credit the account of the second bank. A confirmation message then flows back from Lynx to SWIFT and on to the recipient bank. SWIFT is central to this entire flow. All arrow lead to or away from it. If SWIFT is no longer permitted to bridge Canadian banks and Lynx because of a Trump ban, then this entire payments flow ceases to function. Image source: Payments Canada |
While we can't do much about losing access to SWIFT's international payments services, we do have options for mitigating the effects of lost access on local transactions. Canada must build its own proprietary domestic financial messaging network — urgently. For argument's sake I'll call it MapleFIN. Once built, the government could require domestic banks like BMO and TD Bank to support MapleFIN along with the existing SWIFT option, giving financial institutions two routes for passing on financial messages to other Canadian banks. Then if we are threatened with a de-SWIFTing, at least our domestic payments system won't be paralyzed; we can fall back on MapleFIN.
The oddest thing for me about the sudden emergence of the U.S. threat is that I've been looking to bad actors like Russia and Iran for inspiration on how Canada must harden itself. Like Canada, Russia was historically dependent on the SWIFT network for "almost all" domestic transactions. For many years it had no domestic financial messaging system. Then Russia unjustly invaded Crimea in 2014. It was only at that point that, realizing its vulnerability, the rogue nation belatedly built its own domestic messaging network: the Sistema peredachi finansovykh soobscheniy, or System for Transfer of Financial Messages (SPFS). When Russia's banks finally began to be de-SWIFTed in 2022, they were cut off from making cross-border payments, but at least they could fall back on SPFS for making domestic payments, saving its economy from all sorts of extra chaos.
Iran, too, has its own domestic financial messaging system, having introduced SEPAM in 2013, so when Trump's 2018 de-SWIFTing hit, at least Iran's domestic payments still went through.
We need to do what Russia and Iran did and build domestic payments networks.
A recent design change by the European Union really drives home the point that no nation should be 100% reliant on SWIFT. Like Canada, the EU has always used SWIFT for all of its domestic financial messaging traffic. SWIFT is based in the EU, so you'd think that Europeans would be comfortable being wholly dependent on it. But they aren't. In 2023, European Central Bank modified the domestic payments system so that in addition to SWIFT, banks could also transmit payment messages via a non-SWIFT competitor, SIAnet. (I wrote two articles, here and here, on Europe's decision to reduce its SWIFT reliance).
I worry that many Canadians are still stuck in the early stages of coping with the loss of our privileged relationship with the U.S. There's plenty of anger and betrayal. Many are in denial and think things will return to normal once Trump's regime comes to an end, assuming it ever does. But if we want to safeguard our economy against the years of instability ahead, we can't just stew. We need to accept that things have changed and quickly move forward to mitigate the threat. Financial messaging systems are not irrelevant bits of financial arcanery. They are a vital part of Canada's plumbing through which a large chunk of the nation's commerce flows. If the plumbing seizes up, our financial lives go on pause. Let's fix this, now.
*The Federal Reserve used to refer to its network as FedNet, but appears to have switched its nomenclature to FedLine.
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