After the recognition of pro-Russian separatist territories in Ukraine by Russian President Vladimir Putin, Westerners are preparing to announce a series of economic sanctions. As the crisis escalated on Ukraine’s borders, the US president had half-worded the Russians to cut off their access to the Swift network, which would significantly slow down transactions between Russian banks and the rest of the world. . This measure, which would have a devastating effect on the country’s economy, should not be part of the first sanctions decided by the Americans, however said the deputy national security adviser of the United States, Daleep Singh.
In an interview at World on February 18, US Undersecretary of State for Economic Growth, Energy, and the Environment, José Fernandez, said: “We are prepared to adopt sanctions which would have a high cost for the Russian economy, in particular its financial system, and export controls on products which are essential for the ambitions of the Kremlin and Vladimir Putin. No option is ruled out. »
How does the Swift network work?
Swift (an acronym for Society for Worldwide Interbank Financial Telecommunication) is a cooperative company under Belgian law based in La Hulpe (Belgium), which handles the bulk of payment orders for international transactions.
The Swift network brings together just over 11,600 financial and banking organizations in more than 200 countries. Created in 1973, it automates the writing and sending of payment orders between banks around the world. It is therefore a secure electronic messaging system that allows banking transactions between countries.
For example, when a French company buys $1,000 worth of ICs from a Chinese company, the buyer’s French bank debits their account, then sends a Swift message to the selling company’s Chinese bank to credit their account. of $1,000. The Chinese company can choose to receive payment in US dollars or convert it to yuan, the Chinese currency. The Swift message enables transactions to be carried out securely and quickly, but does not execute them directly: ultimately, Swift’s client banks operate the exchanges themselves when they receive or send payment orders.
In 2021, the network transmitted approximately 10.6 billion payment orders worldwide, an average of 42 million per day.
Is it possible to disconnect Russia from the Swift network?
It is technically possible and it is an option that the American administration has obviously considered in response to a possible Russian military aggression on Ukrainian territory. But for that to be possible, the United States will have to reach an agreement with the other directors of Swift.
“The particularity of Swift’s governance is that small countries are represented as well as large ones. Thus, a country cannot have more than two administrators out of the 25, even if it represents a significant part of the mail flows”, explains Hervé Postic, consultant and managing director of the Utsit group, which specializes in cash management tools. A possible disconnection of Russian banks would therefore be subject to the approval of at least 13 of the company’s 25 directors.
An impact on the Russian economy, but also on Europe
The former representative of the United States in Ukraine in 2017, Kurt Volker, called the use of this sanction a “nuclear” option. In an interview at World of December 2021, he specifies that “The economic impact would be serious and immediate. It’s like nuclear weapons: we really don’t want to go that far and use them, but if we no longer have a choice, if Russia attacks its neighbours, kills people, occupies territories, and we want to prevent it, this tool can be used as a last resort. »
Indeed, the exclusion of Russia from the Swift network would be “devastating, especially in the short term”, according to one note from the think tank Carnegie Moscow Center, and would seriously disrupt the country’s economy by slowing down trade between Russian companies and their Western partners. Banking establishments wishing to carry out transactions would be forced to resort to manual methods of processing transactions, to find their own communication channels (electronic messaging or encrypted software), which would slow down exchange times. The Carnegie Moscow Center recalls that during the previous similar threat in 2014, forecasts envisaged a fall in Russian GDP of five points.
In 2020, the country’s trade balance was in surplus by $92 billion and accounted for 6.2% of its GDP. Of the $331.7 billion in Russian exports, almost half (49.6%) is made up of hydrocarbons and refined petroleum products.
Russian gas is a major geopolitical issue behind this threat, with serious consequences for the Kremlin since Russian hydrocarbon exports represent nearly half of the amount of its trade with the European Union, but also penalizing for the EU, which would see probably energy prices will rise when they are already at an all-time high.
Finally, this sanction would place French interests in a delicate position. France is the second largest foreign investor and the largest foreign employer in Russia, with 160,000 employees. The four major French banks are present there, and Société Générale even owns Rosbank, one of the main Russian private banks.
A risk of development of competing systems
Even temporarily excluding Russia from the Swift network is not necessarily the most strategic measure, due to the risk of the Kremlin increasing its independence from Western tools like Swift. Following the European threats that followed the annexation of Crimea in 2014, the Bank of Russia developed its own competing system, the SPFS (Financial Message Transfer System). At the end of 2020, it connected 23 foreign banks to Russia in Armenia, Belarus, Germany, Kazakhstan, Kyrgyzstan and Switzerland. Agreements are being discussed to integrate the Russian network with the Chinese Cross-Border Inter-Bank Payments System and to connect the Russian SPFS system to India, Iran and countries of the Eurasian Economic Union.
For consultant Hervé Postic, “What is certain is that as long as the banks are not prohibited from working with their Russian counterparties, they will find a messaging solution to agree on the transactions to be carried out”.
In addition to the option of cutting access to Swift, other sanctions are mentioned. The German Chancellor suspended, on Tuesday February 22, the certification of the Nord Stream 2 gas pipeline, essential to “its commissioning” and which should be subject to a “revaluation” policy by the Ministry of Economy. The construction of this gas pipeline has been completed since last fall. Also, there could be talk of prohibiting clearing in dollars with Russian banks, which would amount to prohibiting transactions in US dollars with Russian companies.