Europe banned several Russian banks from the SWIFT payment system after the country started a military invasion of Ukraine in February 2022. This messaging network covers over 200 countries and includes an estimated 11,500 financial institutions – with
. It gives each participant its own identification code – a BIC, or Business Identifier Code. The BIC of Commerzbank, for example, is COBADEFFXXX, identifying the bank as “Commerzbank” (COBA) from Germany (DE) in Frankfurt (FF) and it being the head office (XXX). This way, financial institutions communicate transactions to each other in a standardized way. Without SWIFT, cross-border financial traffic is more difficult. As SWIFT provides a payment transaction framework - rather than actively transferring payments itself -
. Long regarded as a “nuclear option”, so how will a ban of such a system this impact Russia moving forward?
A hit on Russia’s economy
The aim of the ban is that Russia loses access to common transactions within the global financial market. On March 2, the EU announced it removed seven Russian banks - including VTB,
Russia’s second-largest bank in terms of assets. Many analysts agree that the ban will have an impact on Russia’s economy.
The Russian ruble reached historical low figures in March 2022 already and, in the long run, could lead to shortages on foreign currencies - hindering the country’s imports. How big the impact will be exactly is not clear, though, for three reasons: First, as SWIFT focuses on cross-border transactions,
its market size in Russia was about 10 times smaller than that of local electronic payment processor BRPS. Second, the ruble does not rank as one of
the most used currencies in the SWIFT system. Third, Russia has
some of the world’s largest gold reserves and
nearly equals the United States in foreign currency reserves.
A full ban?
Some also argue that the ban still leaves room for Russia. For instance, Gazprombank and Sberbank – two banks involved with gas payments – were exempt from the ban.
Several EU countries, Germany especially, rely on gas imports, meaning that SWIFT payments being available to these two Russian banks specifically would still make energy payments possible. Also, some observe that a ban on SWIFT does not mean Russian firms are unable to access other cross-border payment systems. Indeed, Russia developed its own alternative to SWIFT – the System for Transfer of Financial Messages or SPFS – in 2014, meant to be used by the country’s domestic institutions and linked to Iran’s domestic financial clearing system since that country was cut off from SWIFT in 2019. No figures are available on whether Russia’s SWIFT ban in 2022 will impact the use of SPFS. There was an indirect impact elsewhere, though: Both
the exchange rate of China’s yuan as well as payments-related stocks from China jumped on February 28, 2022, amid rumors that China’s cross-border payment system, CIPS, as well as
China’s digital currency the e-CNY, might see more use in Russia.
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