Disconnection from SWIFT may have serious impact on Russian economy

Disconnection from SWIFT may have serious impact on Russian economy
Photo: Monito - Money Transfer Comparison

The latest round of US sanctions has had no effect on Russia’s interaction with international financial systems, but the issue of disconnecting the country from SWIFT, Visa or MasterCard is regularly raised as an option.

Disconnecting Russia from SWIFT may have serious consequences for Russian exporters, says EU Reporter adding that it is still unlikely that the process will go further than threats from the United States and European Union. SWIFT is an international interbank system for transmitting information and making payments. More than 11 thousand organisations in two hundred countries are connected to the system with Russia being one of the three largest operators. Disconnection from SWIFT has been cited as a possible sanction move since 2014, and 46th President of the US Joe Biden has put the measure on the table again.

Although Russia launched its own System for Transfer of Financial Messages in 2014, it is not yet a fully fledged replacement for SWIFT. The Russian system includes only Russian banks and about a dozen foreign lenders from the countries of the Eurasian Economic Union (EAEU), so it is not suitable for all international payments. Meanwhile, 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, warn experts.

“Disconnecting from SWIFT will paralyse the transactions of Russian banks,” believes Chief Strategist of Beta Financial Technologies Ararat Mkrtchian adding that major exporters will suffer the most. He warns that there will be a lot of intermediaries bypassing the restrictions. “The financial institutions of the EAEU countries will especially benefit from this.”

Disconnection from SWIFT has been cited as a possible sanction move since 2014, and the 46th President of the US Joe Biden has put the measure on the table again. Photo: European Parliament

“By itself, disconnecting Russian banks from SWIFT means only increasing the cost and slowing down financial transactions between counterparties,” considers Oleg Bogdanov, a leading analyst at QBF investment company. He says that it will take some time to restore chains estimating this period at a week or two.

However, the downside of the proposal suggests that it will not be implemented. SWIFT is a private company, and Russian banks bring it money. The company is headquartered in Belgium, so it requires an EU decision to disable its clients. Another option is US sanctions against SWIFT itself, but then European and American companies, which also use the technology, will remain out of business. Nonetheless, the issue is rather sensitive for Russia, and Moscow is working on possible steps to smooth the potential damage out. The Kremlin has repeatedly emphasised the importance of promoting “alternative SWIFT- and US-independent interbank payment systems”.

By Anna Litvina