What will Russia do without Swift?
The US, EU, UK and Canada have announced the expulsion of some Russian banks from the Swift global payments system. Facts and scenarios (not only for Russia)
Russia out of Swift?
To persuade Vladimir Putin to let go of Ukraine, Western allies have decided to use a hefty economic measure.
The United States, the EU, the United Kingdom and Canada have announced the expulsion of some Russian banks – the main ones, although there is not yet a detailed list – from the Swift global payments system, a network that connects the banks from all over the world and is considered the backbone of international finance; and also measures to prevent the Russian central bank from compensating for the punitive measures with the monetary reserves accumulated by Putin.
It is the toughest response to the invasion of Ukraine so far and it is a victory for Ukraine, which since Thursday has been pleading with countries to exclude Russia from Swift. The government of Kiev even went so far as to say, with the Foreign Minister Dmytro Kuleba, that those who did not do so would have "blood on their hands".
"Banning Russia from Swift, the worldwide network that provides messaging services for verifying interbank payments, is tantamount to releasing a 'financial nuclear weapon', said European Commission Vice President Valdis Dombrovskis and French Finance Minister Bruno Le. Maire. And to stop the war in Ukraine, the Swift nuclear option is also making its way and is arriving on the EU table as a super-sanction of the third package of measures against Russia ”, summed up Il Sole 24 Ore this morning.
"In essence, most of the Russian banking system will be cut off from the G7, including the operations of the Russian central bank with its reserves," former Treasury executive Fabrizio Pagani, now at the fund, told Tg de La7. American Munizich.
At the moment, pending the official decision, it seems that payments for Russian energy supplies are excluded from the measure.
From the beginning Boris Johnson and Joe Biden had waved the measure as the ace in the hole to lead Vladimir Putin to milder advice, causing a series of distinctions among the allies.
The resistance of France, Germany and Italy gradually faded until the anti-Russia turn inspired by the United States.
“Cutting Russian banks and financial companies out of the global Swift circuit, a sanction strongly desired by the US, Canada, the United Kingdom and the Baltic countries, is not excluded, in principle, by any of the 27 EU member states. Germany, Italy, France, Hungary, Cyprus, or the states that initially turned out to be among the most cautious, have all gradually made it clear that they have never vetoed a priori ”, wrote Il Sole 24 Ore .
There is little precedent for such a move, particularly against a country that has nuclear weapons.
It is the first time that the central bank of a G20 country has been sanctioned and so far only Iran and North Korea have been removed from the Swift payment system; the US had so far imposed sanctions only on the central banks of Iran, Venezuela and North Korea. However, the Kremlin had already prepared for the possibility of being cut off and since 2014, after the invasion of Crimea, fearing the retaliatory measure, it has created a transfer system called SPFS with which in 2021 it managed a fifth of the volume of payments Russians
As mentioned, the exclusion of Russia from the Swift was a distant hypothesis until a few days ago, considering a sort of nuclear option of a financial nature.
An acronym for Society for Worldwide Interbank Financial Telecommunication, Swift is a secure, universally achieved messagingsystem which is the standard for quickly closing payments for goods, services, raw materials, energy products. Orders, currency exchanges, sales and purchases go through there, with over 11,000 participating companies and financial institutions, a presence in over 200 million messages per day.
Among other measures is the commitment to "impose restrictive measures that prevent the Russian Central Bank from deploying its international reserves" to mitigate the effect of the sanctions, is explained in the well-known conjunction of the Western leaders. According to some figures, in the Central Bank there are some reserves of 643 billion dollars of reserves that Vladimir Putin accumulated before the planned invasion of Ukraine.
"The closure of Swift for Russian banks could also incentivize the upgrading of existing alternative circuits or the creation of new networks or codes for competing Swift-free payments, including cryptocurrencies such as Bitcoin and Ethereum, stablecoins linked to the dollar such as Tether and systems. FinTech and blockchain like Ripple ”, commented Il Sole 24 Ore .
For Sam Theodore, expert in banking and banking supervision, consultant to Scope Investors Services, the real nuclear financial weapon in the hands of the West against Russia is another: the blocking of the access of the Russian central bank to its international reserves (estimated in over $ 640 billion) which are held with other central banks. "The impact on the Russian economic and financial system of this measure would be relatively fast and truly devastating," said Theodore when asked by Il Sole 24 Ore.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/cosa-fara-la-russia-senza-swift/ on Sun, 27 Feb 2022 10:23:30 +0000.