This is not to say that the SWIFT bank won’t impact the Russian economy and financial system. Lastly, by only banning “some” Russian banks, or what appears to be a continued wide-ranging carve-out for energy and aluminum trade due to reverberations in global trade, the West has left open the ability for Russia to work around the SWIFT ban for now. EUR and gold also represent a greater percentage of reserves than USD, as the USD’s use in trade has sharply declined whilst Russia companies in general have de-levered. Bank of Russia has shored up F/X reserves to USD 600 bn, or 40% of GDP, which is over 4x the cushion of most European central banks.
Mainland China already has its own communication system for trade-related deals in CNY for their local banks.įurther, in response to the previous Ukraine/Crimea sanctions, Russia had begun transforming its various economic metrics. Like China’s version, CIPS (Cross-border Interbank Payment System), it’s small, but together the platforms could provide at least a regional alternative to SWIFT. Blocking Russia from SWIFT could also impact the USD’s dominance as a reserve currency over the longer-term, as this move most certainly pushes the Kremlin even closer to mainland China and to develop a more robust alternative payment system which will ultimately undermine the USD. As a result of the United Kingdom’s campaign to press the European Union (“EU”) in 2014 to block Russian bank use of SWIFT as a sanction over their adventurism in Ukraine/Crimea, the Bank of Russia (central bank) created the Russian equivalent of SWIFT, called SPFS ( anglicized ‘System for Transfer of Financial Messages’) which included over 400 member banks (including those from former the Soviet states) and handled 20% of domestic financial communications during 2020. The effectiveness of a SWIFT ban on Russia is not so clear, however. As the theory goes, if Russia were cut off from SWIFT the country would essentially be severed from most of the global financial system. As a major supplier of energy globally, Russia ranks sixth globally in terms of payment messages sent over SWIFT, or second in terms of the number of banks (300) on SWIFT behind the US. Half of all high-value cross-border payments from 212 countries are done through SWIFT with an average of 42 mn messages per day. When banks do not have an established relationship with one another, an intermediary bank is used to facilitate the transfer. When two banks have a commercial account relationship with one another, the money transfer is completed once the SWIFT message is received. While SWIFT has previously disconnected all Iranian banks in 2012 for breach of sanctions, this is the first time a major nation’s (formerly G20) financial institutions have actually been removed.īased in Brussels, SWIFT is a member-owned cooperative financial messaging platform which connects over 11,000 financial institutions and keeps track of and facilitates trillions of USD in cross-border transactions daily in a secure and standardized way. Finally, the decision was made to remove “some” banks from SWIFT in a bid to further isolate Russia from the global financial system. Up until February 26, 2022, the “nuclear option” of a ban on Russia’s use of the international payments system, or the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”), was missing from that list.
In response to Russia’s invasion of Ukraine, an entire host of financial sanctions were announced by the United States, European Union, and other western powers.
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