SWIFT. The European Union wants to exclude the vast majority of Russian banks from the Swift scheme after the invasion of Ukraine. What consequences for Moscow? What are the risks for France and Europe? We tell you everything.
[Mis à jour le 3 mars 2022 à 17h00] Qualified as a nuclear weapon by the Minister of the Economy Bruno the Mayor, Swift is an essential cog in the global banking network. It is the first interbank data processing device in the world, more than 200 countries are using it. I’exclusion from Russia could therefore prove to be extremely penalizing for the country, and the sanctions decided by the European Union seem to be heading in this direction. Europe, with the endorsement of the United States of Joe Biden has officially announced the banishment of 7 Russian banks of Swift. A measure that will be effective from 12th of March next. A decision that is anything but trivial, supposed to isolate Russia from the east of the world by making many banking transactions with its trading partners impossible. Here are the first banks excluded:
- VTB
- Bank Otkritie
- Novikombank
- Promsvyazbank
- Rossiya Bank
- Sovcombank
- VEB
On the contrary, the first bank of the country, Sberbank and his 110 million customers present too many sensitive links with Europe, it will not be excluded from the international system. However, nearly 70% from the Russian banking network should be banned from Swift. Presented as the financial nuclear weapon par excellence, Swift could isolate Russia from the rest of the world, and this is the objective of the European Union and the United States. These are no less than 300 Russian banks who should be unable to carry out the slightest banking transaction. The energy sector is particularly targeted, yet the gas and the oil should escape European sanctions against Moscow.
Russian companies will not be able to borrow, except at very high rates, to invest and develop the economy. We are currently talking about interest rates at from 10 to 20%, after the increase already practiced by the Russian central bank. The position of France and the Minister of the Economy is clear: “We will cause the collapse of the Russian economy“, neither more nor less. And the effects were not long in coming. The collapse of Russia and the capitulation of Vladimir Putin still seem far away, but the Russian currency, the ruble already seems to be suffering with a collapse of 30%.
Swift is the acronym for “Society for Worldwide Interbank Financial Telecommunication”. Created in 1973, this Belgium-based company acts as an IT intermediary between customers of different banks. In other words, it centralizes transfer orders, like secure electronic messaging between countries.
Swift brings together more than 11,600 banking establishments in more than 200 countries. Last year, in 2021, the network transmitted 10.6 billion payment orders in the whole world.
In all likelihood, a large part of the Russian banking market should be completely excluded from the Swift network, until 70%. Good news for France, the purchases of energy products may not be affected by this maneuver. In particular gas, of which European countries are, for some, extremely dependent on Russia. Subsidiary of Société Générale, the Russian bank Rosbank could also escape system exclusion Swift.
This Wednesday, March 2, 7 Russian banks have already been disconnected from Swift. European sanctions are beginning to fall, and this is only the beginning.
Dramatic for the Russian economy, the disconnection of Swift could also turn against European countries, and France. Second foreign investor in Russia, and first employer with 160,000 employees, France ultimately has a lot to lose from such an act. Also, one of the main Russian banks, Rosbankis owned by… The Societe Generale !
It is a real double-edged sword for Europe. It is difficult, if not impossible, to imagine a total exclusion of Russian banks from the Swift system. Indeed, such a decision would prevent all Westerners from buying oilfrom gasfrom coalor even wheat. An act that would turn out to be counterproductive for France, but even more so for countries like Germany whose 1/4 energy consumed comes from Russia.
France exports 5 billion euros of goods by in in Russia. A total exclusion of Swift from Russia would lead to shortfall colossal for France, and payment difficulties quite new.
The possibility of an exclusion of Russia from the Swift network could prove extremely penalizing. This would put an end to all international transactions of Russia, enough to generate a massive capital flight. The banking system would clearly be slowed down, and Russia would then have to rely on alternative secure messaging systems. It has actually had its own bank transaction validation system (SPFS) for several years, but totally incomparable with Swift. Only about twenty banks are part of it.
The most plausible solution would be to approach the China, which also owns its own banking transaction processing network. An extremely heavy handicap to fit into the global economy. As a reminder, Iranian banks were disconnected from the Swift system in 2012. Result? Half of the country’s export earnings had gone up in smoke. Finally, Russia could decide to rely on Indian banking networks to maintain a minimum of international trade.
Bruno the Mayor also announced that all of the Russian central bank holdings have been frozen overnight from Monday February 28 to Tuesday March 1. which represents tens of billions of euros, and this largely hampers the foreign exchange reserves of the Russian central bank on its ability to finance Russian currency trade. As the Minister of the Economy mentioned, the first effects are already clearly visible for Russia on “thehe level of the rouble, interest rates and on the financial market“before continuing:”We are continuing the complete inventory of financial assets of real estate, yachts, luxury vehicles that would belong to Russian personalities under European sanctions.” The France will also identify all Russians with assets in Franceand which could therefore be added to the list of European sanctions because of their proximity with the russian power.