Swift: What is this double-edged "nuclear weapon" to destabilize Russia?

SWIFT.

Swift: What is this double-edged "nuclear weapon" to destabilize Russia?

SWIFT. The summit of heads of state scheduled for this week seems decisive in the continuation of the sanctions imposed by the European Union on Russia. After the exclusion of 7 Russian banks from Swift, what will be the new decisions to try to isolate Russia from the rest of the world? And Swift, how does it work? We tell you everything.

[Updated March 7, 2022 at 10:23 a.m.] Double-edged nuclear weapon, half measure... discussions are going well around the sanctions imposed by France and Europe on Vladimir Putin's Russia. Still, 7 Russian banks have already been banned from Swift, the main network for processing global interbank transactions. A measure that will come into effect from March 12. Asked at the microphone of BFM TV on Monday March 7, the Minister of the Economy Bruno Le Maire intended to pursue the sanctions in a structured way, including the interests of all the countries of the European Union: "There will be the summit heads of state on March 10 and 11, an opportunity to consider the different possibilities. Either way, it's going to be a painful and massive impact for Russia."

Conversely, the country's leading bank, Sberbank and its 110 million customers would have too many sensitive links with Europe, it will not be excluded from the international system. However, almost 70% of the Russian banking network should be banned from Swift. No less than 300 Russian banks should be unable to carry out any banking transaction. The energy sector is particularly targeted, yet gas and oil should escape European sanctions against Moscow. But then, wouldn't it be a double-edged sword as French companies trade with Russians? An alternative exists in Europe with the SEPA network, it is true. But the most complex international transactions go through Swift instead.

One thing is certain, the disconnection of Russian banks from Swift constitutes a real means of isolating Russia from the rest of the world. Russian companies will not be able to borrow, except at very high rates, to invest and develop the economy. We are currently talking about interest rates of 10 to 20%, after the increase already practiced by the Russian central bank. The position of the Minister of Economy, Bruno Le Maire is clear: "We are going to cause the collapse of the Russian economy", neither more nor less. The collapse of Russia and the capitulation of Vladimir Putin still seems a long way off, but the Russian currency, the ruble, already seems to be suffering with a 30% collapse.

Swift is an acronym for "Society for Worldwide Interbank Financial Telecommunication". Founded in 1973, this Belgium-based company acts as an IT intermediary between customers of different banks. In other words, it centralizes transfer orders, like secure electronic messaging between countries.

Swift brings together more than 11,600 banking institutions in more than 200 countries. Last year, in 2021, the network transmitted 10.6 billion payment orders worldwide.

Dramatic for the Russian economy, the disconnection of Swift could also turn against European countries, and France. Second foreign investor in Russia, and first employer with 160,000 employees, France ultimately has a lot to lose from such an act. Also, one of the main Russian banks, Rosbank, is owned by... Société Générale!

It is a real double-edged sword for Europe. It is difficult, if not impossible, to imagine a total exclusion of Russian banks from the Swift system. Indeed, such a decision would prevent all Westerners from buying oil, gas, coal, or even wheat. An act that would prove counterproductive for France, but even more so for countries like Germany, where 1/4 of the energy consumed comes from Russia. But according to the latest information, the gas and oil sectors should be spared.

France exports 5 billion euros worth of goods per year to Russia. A total exclusion of Swift from Russia would lead to colossal shortfalls for France, and quite unprecedented payment difficulties.

From March 12, 2022, 7 Russian banks will be banned from Swift. A decision validated by the European Union and the United States of Joe Biden on Wednesday March 2, 2022. Here are the banks concerned:

In all likelihood, a large part of the Russian banking market should be completely excluded from the Swift network, up to 70%. Good news for France, purchases of energy products may not be affected by this maneuver. In particular gas, of which European countries are, for some, extremely dependent on Russia. A subsidiary of Société Générale, the Russian bank Rosbank could also escape exclusion from the Swift system.

The possibility of an exclusion of Russia from the Swift network could prove extremely penalizing. This would put an end to all of Russia's international transactions, leading to a massive exodus of capital. The banking system would clearly be slowed down, and Russia would then have to rely on alternative secure messaging systems. For several years now, it has had its own bank transaction validation system (SPFS), but it is totally incomparable with Swift. Only about twenty banks are part of it.

The most plausible solution would be to get closer to China, which also owns its own banking transaction processing network. An extremely heavy handicap to fit into the global economy. As a reminder, Iranian banks were disconnected from the Swift system in 2012. Result? Half of the country's export earnings had gone up in smoke. Finally, Russia could decide to rely on Indian banking networks to maintain a minimum of international trade.

Bruno Le Maire also announced that all of the assets of the Russian central bank were frozen overnight from Monday February 28 to Tuesday March 1. This represents tens of billions of euros, and which largely hinders the foreign exchange reserves of the Russian central bank on its ability to finance Russian trade in currency. As the Minister of the Economy mentioned, the first effects are already clearly visible for Russia on "the level of the rouble, interest rates and on the financial market" before continuing: "We are continuing the complete census financial assets of real estate, yachts, luxury vehicles that would belong to Russian personalities under European sanctions." France will also identify all Russians with assets in France, and who could therefore be added to the list of European sanctions because of their proximity to Russian power.


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