How powerful is the "financial nuclear bomb" thrown at Russia? There is a detail to pay attention to!

Text/Liu Wenwen

　　The conflict between Russia and Ukraine is intensifying.

On February 26, local time, the United States, the European Union, the United Kingdom and Canada issued a joint statement announcing that several major Russian banks were prohibited from using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) international settlement system.

　　Ukrainian President Volodymyr Zelensky also claimed that "all European countries" had agreed to disconnect Russia from the SWIFT system.

The work to cut Russia off the SWIFT system has already begun.

This move is also known as one of the most severe financial measures, like a "financial nuclear bomb" in sanctions.

　　What is the "financial nuclear bomb" SWIFT?

How powerful is it?

What impact does this sanctions have on Russia?

What is SWIFT?

　　SWIFT (Society for Worldwide Interbank Financial Telecommunication), first initiated by 6 international banks in Europe, and participated by 239 banks from 15 countries in the United States, Canada and Europe, was registered in May 1973 in accordance with Belgian law and announced its establishment. It is a membership-based professional cooperative organization for the formulation, transmission and conversion of international inter-bank payment information message standards, headquartered in Brussels, Belgium.

　　Now member units cover more than 200 countries and regions around the world, with more than 11,000 member units.

The amount of information (that is, the number of messages) processed by the system every day exceeds 42 million.

　　Wang Yongli, former vice president of Bank of China, previously wrote that the original intention of SWIFT was to become a neutral organization free from any political influence and government interference, to provide professional telecommunications services to the widest range of international payment and payment participants, and to fully protect the integrity of members. Trade secrets play a unique role as an information channel in the international payment and settlement system.

　　SWIFT attaches great importance to the balance of neutrality and compliance, and mainly accepts the supervision and management of the central banks of the Group of Ten (G10), of which the National Bank of Belgium (NBB) plays a leading role in the supervision of SWIFT.

According to the decision of the G10 central bank, in addition to imposing sanctions on some individuals and units, SWIFT has successively imposed sanctions on financial institutions in North Korea, Iraq, Iran, Libya, Russia and other countries, and even delisted all financial institutions in individual countries, thus making the countries subject to sanctions. Foreign economic and trade exchanges and international financial transactions have been severely hindered, and economic and social development has been seriously affected.

How powerful is the "financial nuclear bomb"?

　　It is understood that SWIFT is the most important international payment telecommunications transmission and exchange processing system in the world, and the most important infrastructure (information channel) of the international payment settlement system. development plays a very important role.

　　In other words, without joining SWIFT, it is difficult to carry out international payment and settlement business, at least in terms of efficiency, cost and security.

　　Therefore, once rejected by SWIFT, it will bring a heavy blow to the sanctioned party.

　　Chen Fengying, a researcher at the China Institute of Contemporary International Relations, said in an interview with the China News Agency that SWIFT is a means of trading in international trade and international finance.

Without SWIFT, transaction security would significantly decrease and uncertainty would increase.

And if you are excluded from SWIFT, it is equivalent to being excluded from the financial system, and it is difficult for trade to continue.

　　Huang Wentao, chief economist of China Securities, pointed out that in recent years, the West has accelerated the use of international financial infrastructure as a sanction measure, which has a greater impact on the sanctioned countries.

And SWIFT alternatives are limited.

　　Among the sovereign countries that have historically banned SWIFT, Iran is the most affected.

　　In 2012, as tensions over Iran's nuclear program intensified, Europe and the United States cut off four major Iranian banks from SWIFT.

Iran's GDP growth fell to -7.4% that year from 2.7% the previous year.

　　In 2016, Iranian banks that were no longer on the international sanctions list reconnected with SWIFT, but foreign banks remained cautious about dealing with Iran.

　　In 2018, 50 Iranian banks were again banned from SWIFT, GDP growth that year fell to -6% from 3.8% in the previous year, exports centered on crude oil fell by more than 60% the following year, and the currency rial plummeted to pre-sanctions 1/6 of it, leading to domestic hyperinflation, and Iran is not allowed to issue a new currency.

What are the implications of Russia being shut out of SWIFT?

　　How will Russia be shut out of SWIFT?

　　"This will directly affect Russia's energy transactions. Energy revenue accounts for a large proportion of Russia's export revenue, and the Russian economy was relatively good last year, one of the reasons is the increase in energy prices. So this move is very likely to 'stuck' Russia, if Russia Without workarounds, its trade will be disrupted, which is indeed a problem," Chen Fengying said.

　　Huang Wentao believes that banning SWIFT will greatly enhance the effect of sanctions against Russia, but it will be difficult to reverse the war situation.

　　Huang Wentao analyzed that according to the data of the Russian National SWIFT Association, about 300 Russian financial institutions are members of SWIFT, accounting for more than half of Russian financial institutions, and they are the second largest user after the United States.

Disabling SWIFT will block the sending and receiving of transactions between Russia and international financial institutions.

　　"However, given that Europe and the United States threatened Russia with the ban on SWIFT during the Crimea crisis, the Russian action is expected to take this consequence into account. The ban is more of a bargaining chip for NATO's future negotiations, and it may be difficult to stop the process of military operations." Huang Wentao said.

　　In fact, this move will not only have a serious impact on Russia, but will also have a certain impact on the European and even the world economy.

　　Chen Fengying said that cutting Russia off the SWIFT system would cause a series of problems.

Such as unimpeded trade, energy crisis, high inflation... For Europe, which is already in the energy crisis, its energy shortage may be exacerbated.

"From the observation of the first two days, they were still rational. But now, Ukraine has influenced the decision-making of big countries. The rationality of big countries has been broken by small countries."

　　Huang Wentao also pointed out that Russia, as an important exporter of crude oil and natural gas, accounts for about 12% of the world's crude oil supply and 39.5% of the EU's energy imports. Germany and Italy's natural gas dependence on Russia has reached more than 50%.

The new sanctions will put more pressure on European energy imports in the future.

Europe's energy supply may be strained again, and international energy prices may rise faster, increasing global inflationary pressures.

Sanctions are not “one size fits all”

　　There is one detail that needs to be noted about the sanctions. Although the ban was issued, it was not "one size fits all".

　　Cui Fan, a professor at the School of International Business and Economics at the University of International Business and Economics, pointed out to China News Agency that the prohibition of using the SWIFT system on several major Russian banks is a means of economic sanctions.

It is worth noting that, so far, the sanctions have not explicitly banned all banks in Russia, or even the entire financial system.

The statement excluded "selected Russian banks" from the SWIFT messaging system, meaning that the sanctions targeted some banks.

　　"So far, the specific list of some Russian banks excluded from SWIFT has not been announced by the United States and Europe. It can be understood that the existing list has already been announced for economic sanctions, but further expansion is not ruled out. The United States and Europe are also considering Try to have little or no impact on energy trade," Cui Fan said.