What alternative does Russia have as it prepares itself from SWIFT ban?

Ahead of the collective ban on Russian Banks’ access to Swift, Russia prepares for Swift ban with System for Transfer of Financial Messages (SPFS).

Russia is internally using the SPFS system, developed after the West threatened to cut it off from the SWIFT system in 2014. For international financial information flow, about 20% of Russia’s international trades are done through SPFS. SPFS is Russia’s own transaction messaging platform based on a network of more than 100 countries on China’s CIPS  

The United States and its allies, on February 25, moved to block certain Russian banks’ access to the SWIFT international payment system in further punishment of Moscow as it continues its military assault against Ukraine. Japan later joined moves by the US and other Western nations to impose sanctions against Russia, including restrictions on access for some Russian banks to the SWIFT system.

The actions are aimed at preventing Putin from using $630 billion in central bank foreign currency reserves in the invasion of Ukraine and to defend a plunging rouble.

Cutting Russian banks out of the SWIFT system - the world’s main international payments network - deals a blow to Russian trade and makes it harder for Russian companies to do business.

The ruble plunged to a record low of less than 1 US cent on Monday after Western nations moved to tighten sanctions against Russia, blocking some of its banks from the SWIFT global payments system.

What is Swift?

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication, a secure messaging system that facilitates cross-border payments, allowing international trade to flow smoothly.

SWIFT is currently used in more than 190+ countries, and around 11000 financial institutions stay connected via Swift. It is important to note that SWIFT does not transfer funds. It transfers information

Earlier, the SWIFT ban on IRAN led to a 30% drop in its global trade. And SWIFT ban will cause trouble in Europe- Russia trade.

A Reuters report said that in March 2012, the European Union barred SWIFT from serving Iranian firms and individuals which had been sanctioned in relation to Tehran’s nuclear programme. The list included the central bank and other big banks.

SWIFT enabled special discounts to payments related to food and energy 

According to a report by Reuters, SWIFT is bound by Belgian and European Union rules, which would include economic sanctions.

SWIFT’s website says: “Whilst sanctions are imposed independently in different jurisdictions around the world, SWIFT cannot arbitrarily choose which jurisdictions sanction regime to follow,” Reuters reported.

What will be the impact on the India-Russia trade?

The ban is going to affect the Rupee-Ruble agreement after the end of the Soviets in 1991 and SBI-Kanara Bank JV with Rusi Sberbank.

The SWIFT sanction will also hurt the US.

The use of SWIFT’s alternative will increase, USD’s dominance in global trade will decrease.

Apart from SWIFT, Blockchain-based cryptos like Ripple are better in many respects. 

(With Inputs from Reuters)