[Archyde.com]–Western countries have excluded some Russian banks that invaded Ukraine from the SWIFT (International Interbank Communication Association), an international remittance and payment system, and if the war does not end, there are also strengthening of exclusion measures. I warn you to get it. Therefore, Russia is likely to move to seek alternatives.
Russia can theoretically replace the SWIFT with another means. But experts say that any alternative will increase costs and risks for Russian companies. At least in the short term, Russia will suffer a slump in imports and exports.
SWIFT is an extremely secure interbank message sending and receiving system that enables rapid cross-border payments.
Russia has been a member of the SWIFT board since 2015. More than 300 banks use SWIFT as the main means of communication with domestic and foreign banks, and are among the top users.
We have summarized the alternative payment methods for Russia and why they are not easy to use.
Russian banks may move to the proprietary messaging system “SPFS” developed by the Central Bank of Russia. Last year, it was reported that the central bank said that sending and receiving messages between domestic banks could be easily transferred to SPFS.
No comment was received from a spokesman for the Central Bank of Russia.
However, there are some restrictions on the SPFS, which the Central Bank of Russia describes as “almost equivalent to SWIFT.” The SWIFT operates 24 hours a day, while the SPFS operates only during business hours on weekdays. In addition, SPFS has a limit on the size of messages that can be sent and received, and may not be able to handle complicated transactions.
SPFS also lacks the international connectivity of the system.
“SPFS is currently limited to countries such as Armenia, Turkey, Uzbekistan and Kazakhstan,” said a team of Morgan Stanley analysts.
In theory, Russian banks could use SPFS’s messaging feature to send payment information to banks in countries that are members of the network. According to Professor Alistair Milne of Loughborough University (Financial Economics), “It is possible for a bank (which received a message from a Russian bank via SPFS) to use SWIFT to send money to the international banking system.” ..
However, a sudden surge in transactions that make full use of these channels may draw the attention of foreign regulators and allow Russian “unfriendly” banks to hesitate to continue these activities.
Professor Marcos Zachariadis of the University of Manchester, who has a book on the SWIFT, is wary of these banks being involved in activities that are likely to undermine sanctions, even if regulators take no action. He said he would soon be eliminated from his bank.
As another countermeasure when SWIFT becomes unavailable, it is conceivable to connect to China’s own international interbank payment system “CIPS”. However, CIPS can only be used for RMB-denominated payments.
According to Morgan Stanley’s analysis, the yuan accounts for only 1.9% of international payments, which is much smaller than the US dollar’s approximately 40%, and CIPS has limited usefulness as a cross-border trade settlement method. Will be.
In addition, CIPS itself depends on the SWIFT network, and if CIPS is used, it will be used in combination with SWIFT, so it may be considered that Russia has violated the sanctions that excluded Russia from SWIFT.
A better alternative for Russian banks is to use telephone, fax and messaging apps to specialize with foreign banks that receive payments from importers of Russian products and pay to Russian exporters. Build a send / receive system.
Former SWIFT executives familiar with the matter said that a foreign financial institution created such a system when Iran was removed from SWIFT by sanctions related to its nuclear program.
The system basically required a small team to send two faxes and make two phone calls per transaction.
However, even if these systems are effective, they are error-prone and have security challenges. Although the SWIFT is directly connected to the banking system, messages exchanged by fax or WhatsApp may be manually transferred.
Experts believe that if an error occurs and extra checks are needed to avoid it, costs will rise and smaller transactions will not be worth it.
“It’s not easy to avoid sanctions excluded from SWIFT,” Zakariadis said.