The Possible SWIFT Disconnection and the Russian Economic Impact

  • Russia can be disconnected from SWIFT.
  • Russia created its own alternative payment system.
  • The new system is already in use by 10 nations.

The experts predict new sanctions will be laid against Russia within a year. The predictions are based on Joe Biden favoritism to the Ukraine.  Ukraine has been vocal to remove Russia from the Swift payment system. SWIFT is a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.

In 2019, more than 11,000 SWIFT member institutions sent approximately 33.6 million transactions per day through the network. It should be noted, Ukraine is broke and has nothing to offer, yet worries about the Russian banking system.

Joe Biden Jr. is an American politician of the United States.

If it wasn’t for the strategic location of the Ukraine, the West would never fund the country. Ukraine is one of the most corrupt countries in the former Soviet Block and the laziest one too.

In the case of Russia, disconnection from SWIFT system could impact the world markets and result in the ban of the operation with the Russian debt securities. It could have adverse ramifications on the Russian energy sector investments.

Russian expert in economics  Igor Nikolaev in the interview to Ria Novosti stated “Our country is one of the three world leaders in terms of banking operations that use SWIFT, since this system is used by about 400 domestic financial organizations”. However, at present the scenario is hypothetical.

Furthermore, Russia designed its own alternate  payment system “SPFS”. Thus far, ten nations are using SPFS. The system is expected to be also used by China, Turkey and Iran. There are discussions with many nations from Africa and Asia to adopt SPFS payment system as well.

At present, there are over 1000 financial institutions in Russia that are using the new system. Russian government mandated to design a new system after the round of sanctions in the 2014. The sanctions resulted from the Russian annexation of the Crimea.

Moreover, there are claims that the draft of disconnecting Russia from SWIFT has been presented to the US president Donald Trump. The draft is not finalized and will not be finalized under the Trump administration. In the case of Biden, it is very likely to happen, even though Ukraine is a black hole.

The SWIFT payment system diagram.

Overall, US can impose sanctions against the Russian financial institutions. The restrictions of the Russian national debt, will preclude foreign financial institutions investing into the Russian treasury bonds.

For the Russian citizens, the disconnect from SWFT would mean inability to use Russian credit cards abroad. The solution can be found, by opening bank accounts in another neighboring nation. At the same time, it would cut into profits of the Russian financial institutions in loosing the ability to earn interest on the credit card transactions.

In conclusion, the sanctions and the disconnection of the SWIFT will not have an impact on the Russian currency. This will force, Russia to strengthen its own system. It will also allow Russian populous to travel more to the East vs West for vacations. The scenario did not occur yet, but it is expected to happen soon.

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Christina Kitova

I spent most of my professional life in finance, insurance risk management litigation.

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