The consequences of Russia's SWIFT sanctions
Mar 1, 2022
Western politicians have been talking for days about cutting Russia off from SWIFT (Society for Worldwide Interbank Financial Telecommunications). The exclusion from the SWIFT system has so far only been a warning to Moscow.
In response to Russia's major offensive in Ukraine, the EU, Germany and Western allies have now banned all Russian banks, which have already been sanctioned by the international community, from SWIFT. Let's take a closer look at this exclusion to understand what the consequences will be in Europe.
The international payment service provider SWIFT from Brussels has been in existence since 1973. More than 11,000 banks in over 200 countries use a secure telecommunications network to exchange messages during transactions. SWIFT does not keep accounts and the transfer of funds occurs either directly between two banks or through a third party who has a relationship with the parties involved. In 2012, Iran experienced what it means to be cut off from international payments. So SWIFT is a very important part of international trade.
If Russian companies cannot deliver their goods, including energy sources, to customers in Europe and other parts of the world, then it is clear that commodity prices will continue to rise. In addition, a stock market crash of the Russian stock market is inevitable. The negative effects on world trade are enormous.
It is understandable why countries were reluctant to ban Russia from SWIFT, since not only Russia would suffer, but much of Europe as well. Many European countries are heavily dependent on Russia for natural gas supplies. This means food and energy costs will come under more pressure than before the SWIFT ban.
Russia began looking for a fallback plan years ago, creating its own interbank payment system known as SPFS. This payment system already works with all major banks in Russia as well as those in allied countries. So Russia will now use its own payment system and also switch to Chinese payment systems.
What do these sanctions mean for crypto?
We don't think crypto will replace SWIFT to evade sanctions. Wealthy Russians may indeed transfer their wealth to Bitcoin amid fears their accounts could be frozen. Blockchain is a way to circumvent these sanctions. There are no barriers and anyone can use this technology.
It seems highly unlikely that Russia will willingly submit to the lack of control inherent in decentralized systems. In general, governments are not interested in decentralization as it brings a lot of freedom to users. For any state, this will not be a very attractive aspect. You want to be in control. Even and especially in times like these.