SWIFT exclusion to affect Russia's trade - Times of India

SWIFT exclusion to affect Russia’s trade – Times of India

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SWIFT – the Society for Worldwide Interbank Financial Telecommunication – provides the trusted messaging platform that enables banks to send their counterparts instructions very fast on fund transfers. Most of the world trade takes place with financial messaging passing through SWIFT. The US and the European Commission on Saturday issued a joint statement to exclude some Russian banks from the SWIFT messaging system. TOI takes a look at what this means…
Why does SWIFT have to obey European Commission’s decisions?
SWIFT is a cooperative that is owned by banks headquartered in Belgium. It is overseen by the G10 group of nations and their central banks (the Federal Reserve, the European Central Bank and the Bank of England indirectly oversee SWIFT). In the past, it has implemented sanctions when they were decided upon by a multilateral body like the UN in the case of North Korea. In March 2012, the EU Council directed SWIFT to not provide services to EU-sanctioned European banks. With the latest order, the Russian banks that are mentioned in the sanctions list will be expelled from SWIFT. Once banks are disconnected, sending and receiving money will be a challenge, which will make exports and imports difficult.
How will European countries pay for their energy imports?
The sanctions provide for exclusions for certain banks for certain purposes. The SWIFT platform enables different categories of messages. Each category is given a message type (MT) code. SWIFT can block specific banks or even transactions.
What will be the impact of the sanctions on Russia?
The sanctions on Iran resulted in a collapse of the country’s oil exports as potential buyers were also not able to pay. However, since energy exports to Europe are likely to be exempted, the impact would not be as bad as in the case of Iran. Medicines might also be exempted.
What are the alternatives now for Russia?
Russia has been preparing for possible sanctions in the form of SWIFT exclusion since 2014. That was when it faced sanctions for annexing Crimea. It has set up a messaging system SPFS (which translates into a system for the transfer of financial messages), which works within the country. There are plans to integrate it with China’s Cross-border Inter-bank Payments System (CIPS). This will facilitate trade between Russia and China.
Will the SWIFT ban hit card payments?
Payments across international networks could be hit. In 2014, Visa and Mastercard stopped processing payments at several Russian banks as a result of sanctions. To counter the sanctions, Russia had developed its own payment system – Mir.
What are the global alternatives to SWIFT?
There are financial technology companies like Ripple, which has been offering its platform based on inter-ledger protocol (the same technology behind cryptocurrencies) as an alternative. The company had earlier claimed that this cannot be shut off ‘with a throw of the switch’ like SWIFT. However, given that global powers are behind the sanction, banks may engage in self-restriction even if a platform was available. Cryptocurrencies are another avenue for cross-border remittances. Russia has also been working on a ‘digital’ rouble, which is still not launched.
How will the sanctions impact India?
Following the collapse of the Soviet Union in 1991, India had entered into a rupee-rouble trade arrangement with Russia to ensure that defence and other imports could continue. In 2018, a pilot project was run where Indian importers paid in roubles for diamond imports. These payments were made to the Indian branch of Russia’s Sberbank. SBI and Canara Bank have a joint venture (The Commercial Indo Bank), which might be able to help Indians there.
What will be the long-term implications of the ban?
The impact on Russia will depend more on the geopolitical situation. However, the second-order impact would be the development of alternate networks. The decision to restrict Mastercard and Visa to stop processing Russian payments in 2014 led to the creation of regional card networks. The same may happen now with cross-border. Before the pandemic, India, Russia and China were planning an alternative to the SWIFT, using the BRICS platform to launch it. Such initiatives may gain steam.



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