Russia outside the "SWIFT" system... What are Putin's options?

Putin


Russia outside the "SWIFT" system... What are Putin's options?

After the White House announced, in coordination with the European Commission, France, Germany, Italy, the United Kingdom and Canada, on Saturday, that the United States supports the exclusion of Russian banks from the "Swift" banking system that connects thousands of banking institutions around the world.

Removing Russia from the SWIFT system will make it nearly impossible for financial institutions to send money in or out of the country, causing a sudden shock to Russian companies and their foreign clients, especially buyers of oil and gas exports denominated in US dollars.

Options and alternatives for Russia:

Russia has taken steps in recent years to cushion the shock if it is removed from the SWIFT system.

Moscow created its own payment system, SPFS, after it was hit by Western sanctions in 2014 after its annexation of Crimea early that year. SPFS now has about 400 users, according to the Central Bank of Russia. Currently 20% of local transfers are made through SPFS, but message volume is limited and operations are limited to weekday hours.

China's new interbank payment system, or CIPS, may provide another alternative to SWIFT. Moscow may also have to resort to using cryptocurrencies. But these alternatives are not attractive.

There is precedent for a country being removed from SWIFT, as Iranian banks were fired in 2012 after the European Union imposed sanctions on them over the country's nuclear programme. Iran's loss was then estimated at nearly half of its oil export revenue and 30% of foreign trade after it was removed from SWIFT.

The European Central Bank has warned lenders with significant exposure to Russia to prepare for sanctions against Moscow, according to the Financial Times. ECB officials also asked banks how they would respond to the scenarios, including a move to prevent Russian banks from accessing the SWIFT system.

What is the "Swift" system?

The Association for Worldwide Interbank Financial Telecommunication was founded in 1973 to replace telex and is now used by more than 11,000 financial institutions to send secure messages and payment orders. With no universally accepted alternative, this is fundamental to global finance.

SWIFT is based in Belgium and managed by a 25-person board of directors, which describes itself as a "neutral vehicle", which is established under Belgian law and must comply with European Union regulations.

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