FRANKFURT AM MAIN, Germany – Several European countries, the United States and Canada issued a joint statement on Saturday saying they will remove some Russian banks from SWIFT, the payment system used for most international financial transactions.
The expulsion, which some people believe will deal a heavy blow to the Russian economy by crippling Russian banks’ ability to settle international transactions, could be bad for Europe, as it will at the same time bring energy supply shocks to the European Union (EU).
That is probably why a few European countries like Germany and Italy were hesitant about endorsing it at first.
SWIFT EXPULSION
SWIFT is a Belgium-headquartered global provider of secure financial messaging services. It was formed in 1973 by 239 banks from 15 countries to solve the problem of cross-border payments communication.
More than 11,000 financial institutions are now using SWIFT for their financial transactions, including around 300 from Russia.
According to the joint statement released on Saturday, in concert with the European Commission, France, Germany, Italy, Britain and Canada, the United States is supporting the expulsion of “selected Russian banks” from SWIFT “within the coming days,” so as to “further isolate Russia from the international financial system and our economies.”
“It will stop them [the Russian banks] from operating worldwide and effectively block Russian exports and imports,” European Commission President Ursula von der Leyen tweeted on Sunday.
Many media reports have predicted that such an expulsion, if endorsed for all major Russian banks, is likely to wreak havoc on Russia’s financial system and economy by triggering bank runs and greatly undermining Russia’s exports, and have therefore touted the expulsion as a “nuclear option.”
However, some experts said the move did not necessarily mean that Russian banks will be rendered incapable of conducting international transactions, as they can still finalise the process with other banks through other systems, or even by fax or email given that SWIFT is only a messaging system.
The expulsion will only make the whole process slower and costlier, they said.
In fact, Russia has started to developed its own financial transfer system – the System for Transfer of Financial Messages (SPFS) – since 2014, as an alternative to SWIFT, a move in anticipation of possible expulsions from the West.
At the end of 2020, there were 23 foreign banks connected to the SPFS from Armenia, Belarus, Germany, Kazakhstan, Kyrgyzstan and Switzerland. As of May 2021, the SPFS had been handling around 20 percent of Russia’s domestic payments.
SUPPLY SHOCKS
Citing analysts, some media reports said there was in the beginning reluctance among several leaders from EU countries to take the step of expulsion due to their countries’ heavy reliance on Russian energy exports.
For example, the Financial Times reported on Thursday that German Chancellor Olaf Scholz believed such a move “should not be included in an EU sanctions package.”
British online newspaper The Independent reported on Saturday that Germany, France and Italy opposed a request from Britain to shut Russia out of SWIFT.
“The German finance minister, Christian Lindner, admitted Berlin refused to go further because of ‘a high risk that Germany will no longer be supplied with gas or raw materials,’” it said.
According to Russia’s central bank, the country’s exports totaled US$489.8 billion in 2021, more than 50 percent of which were energy products. Over 40 percent of the EU’s natural gas comes from Russia. Germany, the largest economy in the EU, gets 55 percent of its gas imports from Russia.
Besides, Russia is a main supplier of crude oil and solid fossil fuels to the EU.
Nikolai Zhuravlev, deputy speaker of the Federation Council of Russia, told Russia’s TASS news agency in January that European countries will not be able to receive gas, oil and metals from Russia in case Russia is disconnected from SWIFT.
Many experts say they believe if EU countries are weaned off Russian energy supplies, they will face a huge challenge to find backup suppliers.
“Europe’s economy, which is far more closely tied to Russia’s than the US economy, could suffer if Russia was restricted or prohibited from using SWIFT, including if banks are blocked from access,” NBC News reported on Sunday. – Xinhua
This is the official logo for the Society for Worldwide Interbank Financial Telecommunication (SWIFT) based in Belgium. – Image courtesy of Wikipedia
