[London / New York, 27th Archyde.com]–The decision by Western countries to exclude “some” banks from Russia from the SWIFT (International Interbank Communications Association) on the 26th will have a serious impact on the country’s economy. It also causes great pain to Western companies and banks. It is also important that the West leaves room for further sanctions.
SWIFT is a message system (network) that enables rapid cross-border payments and is the main payment method for international trade.
Russian banks excluded from SWIFT are expected to have difficulty in communicating with foreign banks, including China, which is a friendly country, making smooth trade transactions difficult and increasing settlement procedure costs.
Western nations have also promised measures to limit the ability of the Central Bank of Russia to support the ruble’s buying. However, the names of banks to be excluded from SWIFT have not yet been clarified. Experts say that the effectiveness of this measure depends largely on which bank is targeted.
“The devil is in the details. Watch which bank is chosen,” said Edward Fishman, an economic sanctions expert at the Eurasian Center of the Atlantic Council.
He wrote on Twitter that it would be “a decisive blow” if Russia’s largest banks such as Sberbank, VTB and Gazprombank were included.
Sberbank and VTB have previously stated that they are ready for any development.
Kim Manchester, who runs a company that provides training programs on financial information, points out that the exclusion of Russia from SWIFT is “just cutting into the key points of Russian banks.”
According to Manchester, US President Joe Biden has screened sanctions so far, so there is room to eliminate more banks in the future and eventually eliminate them uniformly to tighten sanctions. It’s like “moving barrage shooting”.
Russia’s exclusion from SWIFT could have a devastating impact on the country’s economy and markets.
Sergei Alexa Schenko, a former vice chairman of the Russian central bank and now living in the United States, predicts that when the market opens on the 28th, the currency ruble will plunge and many imports into Russia will be cut off. “A large part of the (Russia) economy is coming to an end. Half of the markets associated with final consumption will disappear. If we can’t pay, consumer goods will disappear,” he said.
However, if a former Russian bank executive is excluded only from banks that have already been sanctioned, or if the Russian central bank has time to move assets to another location, the sanctions will be effective. Say it could be dull.
“If it’s a bank that has already been sanctioned, it’s not much different, but if it targets the top 30 banks in Russia, the story is completely different.” “It sounds very big and everyone is overjoyed, but in reality it’s a political announcement,” he said.
The sanctions on several banks such as Sberbank and VTB announced earlier by the United States are aimed directly at most foreign exchange transactions (about $ 46 billion a day) by Russian financial institutions. About 80% of bank assets in Russia are targeted.
Russia is building its own payment network “SPFS” to replace SWIFT. According to the central bank, about 2 million messages, which is about 20% of payments in Russia, have been exchanged as of 2020, and the company intends to increase this ratio to 30% by 2023.
However, SPFS has a limited size of messages and operates only on business days, so the membership of foreign banks is not progressing.
Excluding Russian banks from SWIFT was a tough decision.
For the past few days, Ukraine has called on Western nations to eliminate them, with countries such as Britain in favor, but countries such as Germany have been concerned about their impact on their economies and businesses.
France’s Minister of Economy and Finance, Christophe Lemaire, said on the 25th that Russia’s exclusion from SWIFT is a “financial version of nuclear weapons.” “If you have a nuclear weapon, you should think twice before using it,” he told reporters.
However, the tide changed as Russian troops launched an attack on Kiev, the capital of Ukraine, and hopes for a diplomatic solution diminished.
Germany has softened its stance on the 26th, showing its willingness to seek ways to eliminate Russian silver from SWIFT while working to curb “collateral damage.”
According to Manchester, who trains in financial information, if only some banks are excluded, Russian banks will access the international financial system through non-sanctioned banks and multinational global banks. It seems to use a detour called “nesting”.
Global banks will have to make sure that the transactions they support do not violate Western sanctions, which will be a headache for compliance.
Manchester was consulted by a global bank’s financial crime department on the 25th. “We are eager to study to understand the latest developments,” Manchester said, as these banks could be subject to heavy fines if they inadvertently violate sanctions.
(Catherine Belton, Paritosh Bansal, Megan Davies)