Will Russia be disconnected from SWIFT?
How serious is this threat and what can be its real consequences for the Russian economy?
More than 11 thousand organizations in two hundred countries are connected to the international interbank system for transmitting information and making payments SWIFT. Russia is one of the three largest operators of SWIFT, and disconnection from it has been threatened since 2014. The reasons are different —it is the annexation of Crimea, the Donbass deadlock and the Skripal case. The most recent is the situation with the poisoning Alexei Navalny. Joe Biden, as soon as he took office as President of the United States, he promised to cut Russia off from SWIFT.
In December 2020 Reuters, citing sources familiar with the plans of the US president’s team, reported on Biden’s intention to "punish" Moscow for its alleged involvement in a hacker attack on US state institutions. This should lead to “serious economic, financial or technological losses for Russia."
In April 2021 the situation in eastern Ukraine escalated, so the collective West found a new pretext to toughen Russia sanctions. As the head of the leading faction of the European Parliament — the European People’s Party — Manfred Weber put it, Moscow "continues the course of dangerous provocations."
Therefore, the US and the EU must give a coordinated response. As measures that "should become real options," Weber suggested "a large-scale freezing of the accounts of oligarchs" and, again, disconnecting from SWIFT.
On the one hand, Russia has its own System for transmitting Financial Messages (SPFS), launched in 2014. All Russian banks and about a dozen foreign banks from the countries of the Eurasian Economic Union (EAEU) are connected to it. After disconnecting from SWIFT, banks will switch to the Russian equivalent. However, for international payments, the SPFS is not yet a fully-fledged replacement, so the impact will be serious.
Experts point out that the volume of Russian export and import operations in Dollars and Euros is significant, and it is impossible to find an alternative for many product groups.
"Disconnecting from SWIFT will paralyze the transactions of Russian banks," warns Ararat Mkrtchyan, chief strategist at the index company Beta Financial Technologies. — Major exporters will suffer the most. They will have to work exclusively with foreign banks to service their operating activities. There will be a lot of intermediaries bypassing the restrictions. The financial institutions of the EAEU countries will especially benefit from this."
"By itself, disconnecting Russian banks from SWIFT means only increasing the cost and slowing down financial transactions between counterparties. Obviously, the traditional chains will be disrupted, and it will take some time to restore them. But it can be done in a week or two," says Oleg Bogdanov, a leading analyst at QBF.
Another thing, the expert adds, is if the freezing of dollar funds of Russian residents follows. Then a panic reaction in the markets is possible. It will take a quarter or two to calm things down, but in the end, financial ties will still be restored.
Sharp currency fluctuations are inevitable. However, after a short period of turbulence, the ruble will return to normal.
And yet the downside of Russia’s disconnection from SWIFT suggests that it will not go further than threats. First, SWIFT is a private company that makes money on Russian banks. Moreover, the system is used not only for international transactions, but also for internal interbank transfers. For SWIFT to disable someone, you need an EU decision or US sanctions against SWIFT itself. But in this case, Russia’s trading partners — European and American businesses-will remain out of business.
The United States will also have a hard time. First, Washington has only a hypothetical influence on SWIFT, which is headquartered in Belgium. Secondly, Russia can respond with tough sanctions against American banks and politicians.
In turn, Russian Foreign Minister Sergei Lavrov said recently that " Moscow supports the gradual abandonment of the dollar in settlements with foreign partners, as well as from Western-controlled payment systems."
Earlier, Lavrov said that sanctions risks should be reduced by switching to settlements in national or alternative currencies to the dollar.
The Ministry of Foreign Affairs of Russia believes that "the decline in the predictability of US economic policy and the uncontrolled introduction of unjustified sanctions by them call into question the reliability and convenience of the dollar." They also emphasize the importance of promoting " alternative SWIFT and US-independent interbank payment systems."
The Kremlin also commented on the situation around SWIFT. Presidential spokesman Dmitry Peskov did not rule out restricting the use of Visa and Mastercard payment systems in Russia.
Answering a question about their possible shutdown, Peskov noted that many countries impose various kinds of sanctions against Russia.
"This is a rather unpredictable process, so within this process, given such unfriendly, and sometimes even hostile forms of behavior towards us, nothing can be excluded," Peskov said.
On the eve of the Foreign Minister Sergei Lavrov said that Russia seeks to work with its foreign partners to move away from the use of the dollar in mutual settlements and switch to national or alternative currencies. He also called it possible to abandon the payment systems controlled by the West.
At the end of last year, Russian media reported that the US authorities are considering disconnecting Russia from SWIFT as a measure of influence on Moscow.
No matter how the situation develops around this very sensitive issue for Russia, Moscow is already calculating possible steps to smooth out the potential damage. In this regard, there is a rather dramatic experience of Iran, which has fully experienced the deprivation of the possibility of using the SWIFT system on its economy.