(International Observation) How much damage will the U.S. and Europe's SWIFT sanctions have on Russia?
China News Agency, Moscow, February 27th: How much damage will the US and Europe's SWIFT sanctions have on Russia?
China News Agency reporter Tian Bing
The White House issued a joint statement between the United States and Europe on the 26th, saying that it has decided to impose five sanctions on Russia, including excluding some Russian banks from the Society for Worldwide Interbank Financial Communication (SWIFT) payment system.
The Central Bank of Russia immediately declared that it had sufficient resources and tools to maintain the country's financial stability and ensure the functioning of the financial sector.
SWIFT was founded in 1973 and is headquartered in Brussels, the capital of Belgium. Its main function is to transmit settlement information between global banking systems.
What impact will this move by the US and the West have on Russia and the world's financial system?
How will it affect the Russian banking industry?
Russian business media quoted Russian banks as saying that Russia's removal from SWIFT will not affect most domestic services and banking businesses, and credit card transactions in Russia will not change.
The head of the Russian Financial Association also pointed out that bank card transactions in Russia do not depend on SWIFT.
Regarding the question of whether transfers from Russia to foreign countries are still available, Russian experts believe that if the Russian central bank reaches an agreement with foreign partners, it can continue to transfer money, "but only if it is not subject to relevant sanctions and is not included in the SDN list (specially formulated national list). )Bank of".
Cards issued by sanctioned banks will continue to be valid in Russia, but will not be able to be used abroad or paid at online stores and service providers registered in sanctions-supporting countries.
Russian media quoted the analysis of Voloshin, head of the French branch of British consulting firm Aperio Intelligence, that SWIFT connects Russia with the external financial world (if not considering alternatives for Russia and other countries to settle mutual settlements in their own currencies and other items), In fact, direct transfers abroad will not work in the future.
But he also said that sanctioned Russian banks can use SWIFT's alternative system or other means to deal with foreign banks, but it is less efficient, takes longer and costs more.
The Central Bank of Russia announced on the 27th that it will continue to provide banks with cash and non-cash flows in rubles.
“The Russian banking system is stable and has sufficient capital and liquidity to operate smoothly in any situation. All client funds on the account are kept and ready to use.”
Are sanctions a "double-edged sword"?
Analysts believe that excluding Russia from SWIFT may pay a high price for both Russia and the United States and the West, which is actually a "double-edged sword".
Rybakova, deputy chief economist at the Institute of International Finance (IIF), said the Russian central bank would be the first major central bank to face such a situation.
Before the Russian central bank, the central banks of Iran, Syria, Afghanistan, and Venezuela were all subject to Western sanctions.
Since 2014, in response to Western sanctions, the Central Bank of Russia has developed and operated the "local version" of SWIFT, the Financial Information Transmission System (SPFS), which is used by nearly 400 institutions and enterprises, and 23 foreign banks are connected to SPFS.
Among the participants are foreign institutions, but mainly local Russian institutions and enterprises.
According to the statistics of the Russian Central Bank, the average monthly information transmission volume of SPFS in 2020 is about 2 million, which has accounted for more than 20% of the monthly information transmission volume using the SWIFT system in Russia.
Russian experts analyzed that since 2014, the United States and the West have been discussing imposing sanctions on Russia, and suggested that one of the major options is to “kick out” Russia from SWIFT, but this sanctions have not been implemented until recently.
Given that some Russian banks are currently excluded from SWIFT, it is not ruled out that more foreign banks will join SPFS in the future.
In fact, as early as May last year, Russian Foreign Ministry spokeswoman Zakharova said that Russia’s inter-departmental divisions are taking the departure from SWIFT as a hypothesis to conduct research and analysis on its different scenarios, and discuss the establishment of SPFS and other countries’ cross-border payment systems. connection possibilities, with a view to minimizing the risks and economic losses arising from the country’s limited use of conventional international financial instruments and payment mechanisms.
It is worth noting that, according to Western media reports, the sanctions will leave room for inter-bank payments related to Russian oil and gas.
How much of the Russian central bank's assets will be frozen?
Russia's international reserves mainly include foreign exchange reserves, gold reserves, reserve positions in the International Monetary Fund (IMF) and Special Drawing Rights.
According to the latest report of the Russian Central Bank, as of February 18, its total international reserves exceeded 643 billion US dollars.
As of Feb. 1, there were $311 billion in reserves held in foreign-issued securities and $152 billion in cash and deposits at foreign banks.
In addition, there are $132 billion in gold reserves (about 74 million troy ounces) deposited in Russia, about $30 billion in IMF reserve positions and special drawing rights.
This part of the reserve is actually protected without restriction.
The last time the Russian central bank disclosed the structure of its foreign exchange reserves was in January this year, that is, as of mid-2021, because the disclosure of such data is usually delayed by half a year.
Therefore, given the sharp increase in the risk of Western sanctions against Russia in recent months and weeks, the current structure of Russia's foreign exchange reserves may be different.
As of June 30 last year, 16.4% of the Reserve Bank of Russia, or $96 billion, was in U.S. dollar assets, but the actual amount may be less now.
In addition, there is an equivalent of $189 billion in assets denominated in euros, and another equivalent of $38 billion in sterling.
How will the Bank of Russia policy change?
Needless to say, with dollar, euro and sterling reserves set to be frozen, the Bank of Russia's resources for foreign exchange intervention to support the ruble will shrink considerably.
On February 24, the day the Russian military launched a military operation in Ukraine, the local currency ruble fell sharply, and the Russian central bank immediately announced its first intervention since 2014.
Before the intervention, the exchange rate of the dollar against the ruble in the Russian foreign exchange market reached nearly 90 rubles. After the intervention, it began to stabilize. At the close of the 26th, the exchange rate of the dollar against the ruble was 83 rubles.
The Bank of Russia has not disclosed how much foreign currency was spent on the first day of the intervention.
In the face of the possibility of some reserves being frozen, the pressure on the ruble may be even greater.
In terms of repaying foreign debts, according to the Central Bank of Russia, in April and July this year, the government will redeem $1.2 billion in external bonds.
However, international rating agencies have warned that Russia could face difficulties repaying its external public debt due to sanctions.
For example, S&P Global said on the 25th that in some cases, severe sanctions "may weaken the technical ability or willingness of the Russian government to repay foreign debts on time".
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