SWIFT Ban: A Game Changer for Russia?
The comments below are an edited and abridged synopsis of an article by Stephen Flood
As part of the sanctions against Russia, seven Russian banks have been cut off from SWIFT (Society for Worldwide Interbank Financial Telecommunication).
SWIFT is a messaging system that links more than 11,000 banks in 200 countries. It doesn’t move actual money between the banks, but transmits messages between them with instructions to settle transactions. It is crucial to the international trade system; without it, countries wouldn’t be able to settle trade transactions.
Two key factors underlie the dilemma of cutting Russia’s access to SWIFT altogether:
The first is how to keep the channels open for purchasing Russia’s oil and natural gas, especially in Europe, where prices have surged. Russia supplies around 40% of Europe’s natural gas. If it is no longer available, prices will rise even more.
The second is if Russia is completely cut off from SWIFT, it will be difficult for foreign banks to collect money owed to them from Russia’s banks.
Russian banks owe foreign banks approximately $120 billion in assets; of this amount, about $15 billion is owed to US banks with another $25 billion owed to Italian and French banks.
SWIFT is the largest interbank messaging system. There are others, such as Telex, which are less efficient and more expensive, and Russia and China both have their own payment systems. Russia’s system has 23 foreign banks connected, and China’s Cross-Border Interbank Payment System (CIPS) has around 176 participants.
The interconnectedness of the banking system and reliance on US dollars have been issues that Russia (and China) have been working to change.
Moreover, Russia has strategically de-dollarized its official reserves for many years. And instead of a currency issued by another central bank, Russia has increased its official gold holdings.