The Ukrainian crisis is as real as it gets and with disinformation and fake news being a constant on both sides of this war, it is important to understand just exactly will the SWIFT blockade lead to.
Understanding SWIFT
The whole banking sphere operates under the notion that there is a system which ensures the fast transaction and transfer of funds from one point to another.
This system is more commonly known as the Society for Worldwide Interbank Financial Telecommunication, or SWIFT for short.
In essence, SWIFT is the backbone of international trading operations as it works basically as a secure messaging system in cross-border trades and builds a country’s economic stronghold.
The main question: Can Russia avoid this at all?
Russian banks do have an alternative in place known as the System for Transfer of Financial Messages, more commonly referred to by its acronym, SPFS. It is estimated that in 2020, the system sent around 2 million messages, a number which is roughly 20% of all domestic transfers. SPFS’s operations are also very limited in comparison to SWIFT (only weekday working hours vs a 24/7 system), there are also limits the size of messages which should be under 20 kilobytes.
Another way Russia could bypass or at least dampen these restrictions would be through CIPS, the Chinese Cross-Border Interbank Payment System. It is a much more realistic alternative in case banks get disconnected given that over 20 Russian banks are already a part of it. Moreover, it could even turn into a regional alternative to SWIFT, mainly in the Eurasia region, something which could only be achieved under a collaboration between the Russian (SPFS) and the Chinese (CIPS) as a joint solution.
Nesting is also a possibility
The blockade which could possibly result in a devastating blow to the Russian financial ecosystem can also lead to “nesting”. Nesting, to put it in simple terms, happens when refuge is found in non-sanctioned banks and/or large multinational companies as a way to reach the international market.
With several countries recently declaring that Russian Federation’s banks will be targeted, and a SWIFT blockade will be placed upon them, is it possible that it might lead to the unbecoming of Russia?
While some of the consequences are hard to predict others are surely not. The SWIFT blockade it will result in an unbelievable difficulty for Russian banks to initiate transactions, trades will slow down a great deal, transactions will be costlier, imports to Russia might even completely disappear.
Regardless, all things put in place could eventually lead to the country’s economic collapse, namely Russia’s banking system, but one should also be concerned about the subsequent extraneous effects which that decision will entail.
These gargantuan sanctions will surely mold the Eurasia region’s system but, more importantly, they will change modern age warfare and hopefully be crucial in making countries reconsider their actions.