Can Russia Survive Western SWIFT Sanctions?

　　Xinhua News Agency, Beijing, March 1

　　Xinhua News Agency reporter Xu Chao Fan Yu

　　The Central Bank of Russia announced on February 28 that it would raise its benchmark interest rate to 20%.

The day before, the Russian central bank announced a series of financial stability measures to reduce the impact of the latest Western financial sanctions on the financial sector.

　　International observers believe that the United States and other Western countries have announced that some Russian banks will be excluded from the Society for Worldwide Interbank Financial Communication (SWIFT) system, which is expected to have an even greater impact on the Russian economy than before.

However, in recent years, Russia has worked hard to build a financial firewall against multiple rounds of Western sanctions, and the current high global energy prices have made Western countries a lot of concerns. It is expected that the latest sanctions will not be effective enough to suppress Russia.

　　Western countries resorted to SWIFT sanctions, which some media called the "nuclear-level" option, causing a lot of shock in the market.

The Central Bank of Russia issued a statement on February 27, saying that Russia has the necessary resources and tools to maintain financial stability and will guarantee the flow of cash and non-cash in rubles among banks.

But the measures did not allay investor concerns, with Russia's local currency, the ruble, hitting a record low at the start of the new trading week.

　　Data show that the exchange rate of the dollar against the ruble soared by more than 40% on February 28 to a record 1 to 119.

The dollar has gained about 50 percent against the ruble so far this month.

　　Analysts believe that, compared with the psychological expectations reflected in financial market trends, the actual effect of the latest sanctions may not be enough to bring the Russian economy to its knees.

　　First, previous rounds of Western sanctions have prompted Russia to adjust its economic structure and improve its ability to withstand pressure to a certain extent.

Since the Crimea crisis in 2014, the Russian economy has been accompanied by Western sanctions, involving finance, energy and other fields.

Russia has vigorously implemented import substitution policies in the economic field and has made some progress, and the dominance of state-owned banks has been further consolidated.

　　According to data from the official website of the Russian Central Bank, as of February 18 this year, Russia’s foreign exchange reserves were about 643.2 billion US dollars, about one-third higher than 8 years ago; as of June 2021, the proportion of the US dollar in Russia’s foreign exchange reserves has dropped. To about 16%, the euro accounts for about 32%, and gold accounts for about 22%.

　　Guido Chamorro, head of emerging markets at Pictet Asset Management, believes that lower foreign debt levels and higher foreign exchange reserves mean Russia is relatively "self-sufficient."

　　Secondly, the energy export, which is regarded as the lifeline of Russia's economy, has not yet been completely blocked, which highlights the dilemma of Western countries.

The United States and Europe have not announced the SWIFT exclusion list, but the basic consensus is to maximize the impact on Russia and minimize its own damage, leaving room for the settlement of energy transactions between the EU and Russia.

　　"The removal of the SWIFT system does not mean that transactions cannot be made, it just makes transactions more difficult and costly." said Paul Marquardt, a lawyer at Davey Law Firm in the United States.

　　Another dilemma for the U.S. and Europe over sanctions is that oil and gas prices will rise further if sanctions disrupt energy supplies.

Not only would this exacerbate its own inflation and supply chain challenges, but it could give Russia an opportunity to earn more energy export earnings.

　　Third, SWIFT's "weaponization" by the West undermined its own credibility, and to a certain extent promoted the construction of alternative channels to help Russia "relieve".

　　In 2014, the Central Bank of Russia developed a local version of the financial information transmission system SPFS.

According to statistics, there are currently 23 foreign banks connected to the SPFS system.

As of May 2021, 20% of transfers within Russia are done through the SPFS system.

　　Russian financial analyst Mikhail Bereev said that the United States can only control its own banks and cannot control banks in other regions.

Russia has its own payment system to which foreign banks can connect.

　　Xu Wenhong, an associate researcher at the Institute of Russian, Eastern Europe and Central Asia at the Chinese Academy of Social Sciences, said that Western countries have repeatedly threatened to remove Russia from the SWIFT system. After shouting "the wolf is coming" for many years, Russia will not have no corresponding countermeasures.

At present, Russia's SPFS system has made progress and can technically replace the SWIFT system to a certain extent, but there are relatively few customers due to usage habits.

Western countries such as the United States and Europe cut off Russia's connection with SWIFT, which will prompt some customers to use the Russian system.

　　As a major energy importer, India is also considering developing a financial information transmission system.

India's "Tribune" reported on February 27 that after the West announced sanctions against Russia's SWIFT, a subcommittee of the Indian Congress noticed that the security of SWIFT's use had been affected and suggested that the government speed up the development of a financial information transmission system to ensure future cooperation with Russia. Trade flows are not disrupted by Western sanctions.

(Participating reporters: Huang He, Geng Pengyu, Hao Yalin)