Western countries have imposed new tough sanctions on Russia in response to the ‘special military’ operation to demilitarise Ukraine. There are statements that one of the options for sanctions could be to disconnect Russia from Society for Worldwide Interbank Financial Telecommunication (SWIFT).
Discussions like the above have stimulated the Russian financial authorities to develop and implement their payment instruments. Thus, Russia created the National Payment Card System (NSPK), the MIR card, the Fast Payment System (FPS) and the Financial Message Transfer System (SPFS). Despite the scepticism accompanying the launch of these tools, they have already proven their worth and have been able, albeit through administrative methods, to take their share of the market.
SPFS System and domestic payments
Payments within Russia will continue to work even if the country is disconnected from the SWIFT international interbank system.
The System for transfer of financial messages (SPFS) was created by the Bank of Russia in 2014 as an alternative channel for interbank interaction to protect against a possible disconnection of the country from the SWIFT payment system.
The number of foreign users of the Financial Message Transmission System (SPFS) of the Bank of Russia grew to 38 in 2021. As per the Russian Central bank, SPFS has shown high reliability and uninterrupted operation 24/7 with Russian and 38 foreign participants from nine countries.
As per experts of the Institute of International Finance (IIF), the Russian System can process all internal traffic, and the shutdown of SWIFT will not cause an immediate financial collapse.
Limited capacity for cross-border operations
SPFS is not ready for actual use in the event of sanctions for international payments. Even in conjunction with the Chinese CNAPS system, the System does not provide the necessary global coverage. China has been developing its System since 2015, but it closes only 0.3 per cent of world traffic, despite the size of the economy.
The Mir card is accepted in Turkey, and some CIS countries, but its penetration abroad is generally insignificant.
The main risk arises in trade with the European Union, accounting for over 35 per cent of Russia’s trade (over $250 billion). Among other things, problems will arise with the supply of hydrocarbons, the export of which from Russia reaches $100 billion.
Russia and SWIFT
More than 11,000 largest organisations in more than 200 countries are connected to SWIFT. The “shutdown talk” was not initiated by Belgium Headquartered SWIFT itself, which would not voluntarily cut off its earning potential as a private commercial organisation. The banks themselves, participants in the SWIFT system, refuse to conduct Iranian transactions, which, in turn, are under pressure from the threat of sanctions and multibillion-dollar fines from US and EU financial regulators. A similar situation has been developing concerning Russia in recent years, and proposals to implement a ban on using the international financial messaging system at the next round of sanctions no longer look incredible.
Russia is the third largest user of SWIFT in the world. The lion’s share of international transactions is settlements with EU countries for Russian fuel. A third of the fuel imported by the EU comes from Russia, which is about 40% of Russia’s foreign trade turnover. It is this fact that, for the time being, holds back Western partners, especially Germany, from deciding to disconnect Russia from SWIFT.
Deputy Chairman of the Security Council of Russia, Dmitry Medvedev, believes this may not happen.
In January, Medvedev said to the Russian media, “In itself, SWIFT is a useful thing; it is really an international system and a private system at that. I’ll be honest; I don’t really believe that someone will disconnect us from this system because it is not profitable for anyone, including this society itself, which is organised for SWIFT, especially since we have a huge number of transactions going through. This is an undermining of confidence in SWIFT,” Medvedev said.
Minister of Finance of Russia Anton Siluanov says Western countries have begun to understand the situation’s absurdity and that they, too, will suffer from such initiatives.
In February, he told the reporters, “If they want to suffer so that we suffer together, then this is justified. I have read the information that the SWIFT issue is being postponed, although nothing is impossible. Their decisions, we see, are reviewed quite often.”
Russia is expanding mutual settlements in national currencies with China, India and other trading partners.
Russian international options if SWIFT is shut down
As the experience of Iran shows, it is possible, although difficult, to live without SWIFT. In the event of a shutdown, it is essential to understand who will suffer the most and to what extent.
Russia will expedite integration into the Chinese international System of interbank payments CIPS and the Indian Payment system.
Russia can expand SPFS to the countries it is trading with.
“If this measure is introduced, we will move on to other possibilities for transmitting information, whether it be SPFS, teletypes or carrying payments in suitcases, but I am exaggerating, of course,” says Anton Siluanov.