The Swift financial system..a weapon to threaten Russia and an arm to implement sanctions

The events of the Russian crisis with Ukraine have escalated significantly over the past hours, after Russia launched military strikes on the military infrastructure of Ukraine. Russia even called on the Ukrainian army to lay down their arms and go to their homes.

This step came after Russia recognized the independence of the Donetsk and Luhansk regions, which put America and the West in front of new challenges that would represent a real change in the framework of the map of global political forces. .

Before Russia launched military strikes on Ukraine, and its recognition of Donetsk and Luhansk, Western countries with America took a set of decisions that would impose economic sanctions on some Russian people and institutions. Britain imposed economic sanctions on 5 Russian banks (they are: Bank of Russia, IS Bank, and General Bank, Promsviaz Bank, and Black Sea Bank), as well as some of the big figures in the Russian system.

Germany also froze the work of the Northern Stream 2 line, and America announced comprehensive sanctions against the Russian “VEB” institution and its military bank, and the application of comprehensive sanctions regarding the Russian sovereign debt, which means depriving Russia of Western funding, and America announced the imposition of sanctions on the Nord company. Nord Stream ZAG, based on the Nord Stream 2 order, in partnership with a Russian company.

With the Russian escalation, and the imposition of these sanctions by some European and American countries, the Moscow Stock Exchange fell by about 8%, and the value of the Russian currency fell to 87.7 rubles to the dollar this morning, Thursday, which led the Russian government to intervene in the financial aspects to restore stability to the markets. The Russian "Sberbank" also reassured its customers of their deposits, and provided its services normally.

And what Russia has been keen on reassuring everyone about the continuation of oil supplies to the international market, which will open a door for it to gaps in the dress of economic sanctions, especially in the short and medium term, as Europe cannot dispense with Russian gas in the short and medium term.

But the most dangerous thing in the conversations made by an American official is that removing Russia from the global financial system “Swift” is contained according to the Russian escalation. This step is taken in the context of the Russian conflict with America and Europe.

What is the "Swift" system?

With the development of intra-economic transactions of the countries of the world, it was necessary to find a mechanism for settlements and financial exchanges, which are produced in exchange for commercial or service transactions. The old mechanism used the “Telex” technology, but it took a few days, in addition to its need for effort and periods of time to audit and review information, As well as its lack of a good security component.

But with the beginning of the seventies of the twentieth century, the “Swift” mechanism was activated, which is a mechanism that relies on modern information systems, through which the negatives of the “Telex” system can be avoided, and the use of the “Swift” mechanism helped the information revolution, as well as the spread of the globalization system over The economic level in the early nineties, especially after the establishment of the World Trade Organization, helped to increase the exchange of financial, commercial and investment transactions between different countries of the world.

Through the "Swift" technology, funds are transferred from one country to another within 24 hours, and this system is also used within the country, but it is more useful in foreign transactions between countries.

The institution supervising the "Swift" system is based in Belgium, and has a group of representative offices spread in some countries of the world, including a representative office in the Arab region in the United Arab Emirates.

10 thousand institutions worldwide, across 212 countries, benefit from the services of the “Swift” mechanism, and most of the institutions benefiting from the “Swift” mechanism are banks, although there is another institution other than banks that benefit from this service, such as non-bank financial institutions, or barter companies .

Each institution dealing with the "SWIFT" mechanism is given a specific code through which it deals with the main institution of the system, and each customer within the banks is given what is known (IBAN) for the possibility of dealing on the "SWIFT" mechanism to receive or send money to the accounts of others, whether in the local or external framework , which is required in foreign transactions.

These transfers are usually made through the “SWIFT” mechanism for fees collected by banks, and these fees increase when the conversion into foreign currencies is required, but if the customer’s balance is in local currencies, the banks obtain the exchange rate difference, and these fees increase when there is an intermediary bank between customer bank.

Russia's financial dealings

The World Bank database figures for the year 2020 show that exports and imports of goods and services to Russia in the same year amounted to 683 billion dollars, of which 305 billion were for imports, and 378 billion were for exports, but it is noted that 2020 is the year most negatively affected by the Corona pandemic.

Referring to the data of 2019, we find that exports and imports of goods and services to Russia amounted to 833 billion dollars, of which 352 billion dollars are for imports, and 481 billion dollars for exports, which means that an important part of the nerve of the Russian economy will be paralyzed if America and the West resort to removing Russia or freezing Its financial system is within the "SWIFT" mechanism.

An important issue that was mentioned in the framework of the American threats to Russia is the imposition of sanctions on the Russian sovereign debt, meaning that Western financing does not reach Russia through the debt mechanism, which is important for Russia, as some investments are financed from the debt portal.

According to the figures of the World Bank base, Russia's external debt, with President Putin taking power there, amounted in 2020 to about 146 billion dollars, and this debt continued to rise remarkably, as it reached in 2013 about 668 billion dollars, meaning that Russia's external debt increased Over 13 years, $522 billion.

But with the onset of economic sanctions after Russia's annexation of the Crimea, it was noted that the value of Russia's external debt was declining, reaching 475.5 billion dollars in 2020.

Closing the debt mechanism from the Russian economy will help reduce Russia's financial and economic dealings significantly, and this may lead to a decrease in the value of Russia's domestic product, especially if the rest of the economic sanctions are added to preventing European financing from Russia, and it is denied access to external debt.

It is reported that Russia’s gross domestic product (GDP) with Putin taking power in 2000 was only $259.1 billion, but reached its highest value in 2013, when it became $2.2 trillion, but with the decline in oil prices since mid-2014, as well as Russia’s entry Punished by economic sanctions in 2014, Russia's GDP fell to $1.6 trillion in 2016.

With the negative repercussions of the Corona pandemic, combined with the previous reasons, Russian output witnessed a further decline to 1.4 trillion dollars.

Exit Swift

The expulsion of any country from the “Swift” system significantly freezes its economic activity, especially if it does not have sources of strength and movement in the international environment. This matter was imposed on Sudan over the course of 30 years during Al-Bashir’s rule, paralyzing the movement of foreign financial transactions, and it is also in practice. It isolates Iran from the international financial system, and its central bank suffers from great difficulty in receiving or sending any money transfers abroad.

If this is implemented on the Russian Central Bank, as well as its banking system, this means that the movement of exports and imports of goods and services will be paralyzed, and Russia will lose a large part of its foreign trade, estimated at 683 billion dollars in 2020, and Russia may even resort to the barter system for trade This margin will be limited and will not meet Russia's economic needs.

It may be difficult for Europe and America to cancel the sanctions imposed from 2014, or those issued in the past few days, at least in order to save face, in light of the Russian position that rejects American and European intervention in the Ukrainian crisis.

But managing the matter with Russia will be through the gateway to China, which has also been experiencing problems with America since 2017, with regard to its foreign trade, and this began with China’s statement its objection to imposing sanctions on Russia due to the Ukrainian crisis, and China may allow

more space for trade and economic transactions. It has a settlement with Russia through local currency settlement, or the barter system, to mitigate the impact of sanctions on the Russian economy.

The second matter is the growing role of Russia in the global energy market, through its wealth of oil and gas, especially natural gas supplied to Europe. According to 2021 statistics, Russia provided 18% of Europe's gas needs.

Hence, Russia may require, for the continuation of its dealings in the international energy trade, the transfer of its dues in cash, or the absence of any restrictions on its financial rights, whether current through its balances abroad, or what its dues it receives in exchange for new contracts.

Is there an alternative?

A few years ago, the Infrastructure Bank was established by China and the BRICS countries, to be an alternative to the World Bank, which is dominated by America and Europe. .

The question that arises in light of the Russian-Ukrainian crisis, will Russia and China think of seizing the opportunity and activating another mechanism for a financial system away from the "SWIFT" mechanism controlled by America and Europe?

This will be welcomed by some countries that have financial problems with America, through the sanctions mechanism, such as Iran, North Korea, Venezuela, and others.

Time may be one of the determinants of thinking about this matter, but it is a strong candidate for taking a step to break the US-Western financial hegemony over the global financial system.