The West Cuts Seven Russian Banks from SWIFT
Western countries agreed to withdraw seven Russian banks from SWIFT, which serves the global financial system. However, they retained access to other Russian banks; Including two significant lenders, opening the supply of payments for vital energy supplies to Russia. Diplomats say the E.U. will formally sign the decision late Tuesday evening. The measures will take effect on Wednesday.
SWIFT will task with reducing VTB, VEB, and five smaller banks. All of them were fully sanctioned by at least one Western country; Which means that they were already disconnected mainly from the global financial system. Sberbank and Gazprombank, both significant banks in Russia, are free from the SWIFT ban. However, the decision to seize some banks was not all an E.U. compromise. Several countries, including Germany, argue that it is essential to make sure that some banks stay on SWIFT to help Europe pay for the necessary energy imports from Russia; it will also allow other significant transfers. On Tuesday, SWIFT says It is politically neutral; It involved the authorities finding out which entities would be subject to the bans and shut them down as soon as It received legal instruction about it.
The issue of banning banks from SWIFT came to the forefront of discussion among Western leaders last week to tighten sanctions against Russia after the intensive lobbying of Volodymyr Zelensky. Western leaders said they agreed to use SWIFT as part of sanctions over the weekend.
SWIFT, or the World Interbank Financial Telecommunications Society, connects more than 11,000 banks and organizations in more than 200 countries and territories. While it does not carry out actual money transfers, it is an essential part of financial plumbing; Securely transfer transfers from one bank to another. This even allows the money to land where it needs to finalize. It is worth noting that the exclusion from SWIFT significantly complicates trade, foreign investment, remittances, and the management of the central bank economy.
With the savings of some banks, the West showed that although it wants to hurt Russia; It has no appetite to completely cut off its financial system – at least at this point. Sberbank is Russia’s largest bank by assets and serves a significant portion of the country’s population. According to the bank, one out of every two companies has an account. Meanwhile, Gazprombank is an essential conduit for oil and energy payments.
Europe relies heavily on energy imports. However, this may change if the situation in Ukraine worsens. High inflation in the U.S. is also exacerbating pressure on the Biden administration to make sure the sanctions do not return to American consumers. The U.S. and other countries said they would consume emergency oil supplies to ease pressure on global supplies.
On Tuesday, Poland firmly pushed the E.U. to seize all Russian banks. Other E.U. countries were not convinced. However, they promised to go back and discuss with other banks; Including the potential addition of Belarusian banks in the coming days.
Gazprombank avoided tougher sanctions imposed on other Russian banks, such as VTB. The E.U. and the U.K also saved Sberbank. The U.S. sanctioned the lender, which blocked it from the U.S. dollar. However, Sberbank can continue to do business with American companies and individuals. There may be options for banks disconnected from SWIFT. Russia, for example, has a payment system. Although it currently has only 23 foreign banks affiliated, 20% of internal transactions are already carried out.
Nevertheless, it is worth noting that Western economists are skeptical of the capabilities of the Russian system; It does not have the same advanced technical standards as the SWIFT – to provide any substantial compensation for disconnection. It also threatens Western sanctions on foreign companies if they participate in the system.
Beijing also has its payment system, which international banks accept more than Russian. Some critics fear that banning Russian banks on SWIFT could link Russia and China together. This will shake the supremacy of the dollar-denominated global financial system.