The European Union’s High Representative for Foreign Affairs, Josep Borrell, announced this Sunday that Russian banks will be disconnected from Swift – Interbank Financial Telecommunications Service -, a communication system that enables payment and transfer of funds between companies from different countries. countries.
“We have reached an agreement to withdraw certain Russian banks from Swift and impose restrictive measures that will cripple the assets of the Central Bank of Russia.” One of the fears of countries like Germany, France and Italy is that the Eurasian country will cut the supply of natural gas and oil to the region.
Such a threat was made by the vice-president of the Upper House of the Russian Parliament, Nikolai Zhuralev. In late January, he told Russian news agency TASS that if Russia were disconnected from Swift, the country would not receive foreign currency, but foreign buyers – Europeans first – would not receive oil, gas, metals and other important ones. components.
While the blocking of transactions with the Russian Central Bank will take effect the moment the measure is published in the EU Official Journal, the exclusion of Russian entities from Swift still requires one more legal procedure.
The system was created in 1973 and is based in Belgium. It connects 11,000 banks and financial institutions in more than 200 countries. It is jointly owned by over 2,000 institutions. It is overseen by the National Bank of Belgium (the Belgian BC) in partnership with other major central banks.
The purpose of the measure, according to the BBC, is to make Russian companies lose access to the normal, instantaneous flow of transactions provided by Swift. Payments for the supply of energy and agricultural products could be affected.
An article written by Maria Shagina of the Finnish Institute of International Affairs last year points out that the cut would spell the end of international transactions for Russia, bring currency volatility and a massive outflow of capital.”
precedent in 2012
There is a precedent regarding the withdrawal of countries from the Swift system. On March 17, 2012, all Iranian banks identified as institutions violating sanctions established by the European Union were removed from the system. Among them were Saderat Bank of Iran, Bank Mellat, Post Bank of Iran and Sepah Bank.
The country lost nearly half of its oil export earnings and 30% of its foreign trade, according to Shagina.
Russia was already threatened with being excluded from Swift in 2014, when the Crimea invasion took place. At the time, the country said that the measure would be equivalent to a declaration of war.
Swift is not unique, but it is the most relevant system
Swift is not the only international payment system, but it is the most relevant. Last year, the average daily volume of transactions processed through intermediary was 42 million, an increase of 11.2% over the previous year.
This year, until February 2, there were 961 million financial messages. This represents an increase of 10.72% compared to 2021. According to the BBC, around 1% of transfers involve Russian payments.
Other systems are more restricted. There is the CIPS, sponsored by China and which involves financial transactions with Chinese currency in Chinese banks; SFMS from India and SPFS from Russia.
The Russian system has more than 400 linked financial institutions. At the end of 2020, according to the Russian news agency TASS, 23 foreign banks from countries such as Armenia, Belarus, Germany, Kazakhstan, Kyrgyzstan and Switzerland were connected.
Shagina estimates that 20% of Russian domestic transactions use SPFS, but transactions are limited and operations are restricted to business days.
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