Western governments are threatening Russia with a package of unprecedented sanctions to stop President Vladimir Putin from invading Ukraine. But one measure seems to arouse particular fear in the Kremlin. This is Russia’s cut off from SWIFT, the global banking system, writes CNN.
SWIFT (Association for Worldwide Interbank Financial Telecommunications) is a global information exchange and financial settlement system. US lawmakers have suggested that Russia may be disconnected from SWIFT in recent weeks. The Russians replied that if this happened, the supplies of oil, gas and metals to Europe would be blocked.
– If Russia is disconnected from SWIFT, we will not receive (foreign – ed.) Currency. But buyers, primarily European countries, will not receive our goods – oil, gas, metals and other important components – said Nikolai Zhuravlev, vice-chairman of the Federation Council, the upper house of the Russian parliament, quoted by the state agency TASS on Tuesday.
What is SWIFT?
The Association for Worldwide Interbank Financial Telecommunications (SWIFT) was founded in Brussels in 1973 with the aim of replacing the telex. Currently, SWIFT is used by over 11,000 financial institutions to send secure messages and payment orders. SWIFT acts as an intermediary in transactions between banks, brokerage houses, stock exchanges and other financial institutions. As there is no internationally accepted alternative, SWIFT is vital to global finance, writes CNN.
Cutting Russia off SWIFT, he adds, would make it almost impossible for financial institutions to send money to or from the country. This would come as a shock to Russian companies and their overseas customers, especially US dollar-denominated oil and gas buyers.
“This would end all international transactions, create currency instability and cause a massive outflow of capital,” wrote Maria Szagina of the Finnish Institute of International Affairs.
In turn, the former finance minister Alexei Kudrin estimated in 2014 that disconnecting Russia from SWIFT would cause its economy to shrink by 5 percent.
In 2012, SWIFT disconnected Iranian banks from the system after the European Union imposed sanctions on them for a nuclear program. According to Shagina, Iran lost almost half of its oil export earnings at the time, and foreign trade decreased by 30 percent.
“SWIFT is a neutral global association founded and working for the common good of its community,” the organization said in a statement on Wednesday. “Any decision to impose sanctions on a country or individual entity rests entirely with the competent government bodies and the relevant legislators,” she added.
SWIFT is a “mighty weapon”
CNN points out that it is unclear how much support there is among US allies for taking such action against Russia. According to Szagina, the United States and Germany have the most to lose because their banks are SWIFT users that most often communicate with Russian banks.
UK Prime Minister Boris Johnson said on Tuesday that his government was discussing with the United States the possibility of disconnecting Russia from SWIFT. – There is no doubt that it would be a very powerful weapon (against Russia). I’m afraid it can only be applied with the help of the United States. We are discussing this subject, the British Prime Minister noted.
SPFS – Russia’s answer to SWIFT
In recent years, Russia has taken steps in case it is removed from SWIFT. After it was hit by Western sanctions for the annexation of Crimea, it created its own system – the SPFS. The Russian central bank announced that 400 institutions are currently using the system. According to Maria Szagina, 20 percent of domestic transfers are currently made by SPFS, but transaction volumes are limited and operations are limited to business hours.
Another alternative to SWIFT could be China’s fledgling cross-border interbank payment system (CIPS). Moscow may also be forced to resort to the use of cryptocurrencies. “But these are not attractive alternatives,” emphasizes CNN.
– SWIFT is a European company, an association of many countries. Everyone needs to decide to disconnect. The decisions of the United States and Great Britain are definitely not enough, said Żurawlew. “I am not sure that other countries will support this move, especially those whose share of trade with Russia is large,” he added.
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