Vladimir Putin’s Russia’s Alternatives for Dealing With the SWIFT Ban.
Putin's best option is China.
Vladimir Putin's Russia is becoming a “pariah” of the global economic system. This is at least the goal that the West has set for itself by validating several sets of sanctions, including the cutting off of certain Russian banks from the SWIFT interbank messaging system.
This is the first time that a state of this scale has been hit by such sanctions. The West fears collateral damage, but also that Moscow will manage to circumvent these measures. It is one thing to confine countries like Burma or North Korea, but it is another to confine the world's 11th largest power.
Since the annexation of Crimea in 2014, Russia has gone to great lengths to develop alternative payment systems. Thus, Moscow has developed MIR, in response to the blocking of Visa and Mastercard services for some of its nationals. The two American giants have just extended this blockage to the whole of Russia in recent days.
The country has also developed its own SWIFT network, the SPFS, in the wake of the Crimean war. However, despite the presence of German, Turkish or French institutions, the system is far from being able to replace SWIFT for international exchanges.
“The reason why Swift is so important is that everyone uses it,” says Jonathan Hackenbroich, a researcher at the European Council on Foreign Relations (ECFR).
An alternative for Russia would be to turn to China's Swift, the CIPS. A rapprochement between these two states is one of the great fears of the West. But for the time being, China cannot replace the European market, especially for Russian gas.
Moreover, the brake could come from China, which is not yet ready to be subject to secondary sanctions by the United States, including being deprived of access to the dollar, to support Moscow. “Russia is no longer the economic power it once was and, in the medium term, because of the sanctions, it is not an ideal economic partner,” says Jonathan Hackenbroich.
Nevertheless, Moscow and Beijing have just signed a contract for the construction of a gas pipeline capable of supplying up to 50 billion cubic meters of gas per year. In the longer term, it is likely that one of these alternative systems, or even a new one created from scratch, will stand up to Swift.
What is certain is that this is the first and last time that this sanction will be applied to a major power. Next time, countries will be prepared for such a threat. A joint Russian-Chinese system could start to be attractive to foreign banks given the volume of transactions that this set would represent.
The last option would be for Russia to rely on a global P2P payment system whose transactions cannot be censored. I am thinking of Bitcoin of course, but the size of the market does not allow for the moment to make it a credible enough solution for Russia. Maybe in the future, but not yet for now. Moreover, Russia's opening to Bitcoin is only very recent, and, certainly, Putin never made it a plan A in the strategy he has been scaffolding since 2014.
We'll see what happens in the coming weeks and months, but the current situation is certainly double-edged. Either it brings the Russian economy to its knees by forcing Vladimir Putin to end a war he can no longer finance, or it will prove that there are now solutions to escape the American stranglehold on the current monetary and financial system.
Some reading
The Only Indicator You Need To Focus on To Stay Relaxed With the Bitcoin Price. Opt for low-time preference.
Most People Don’t Care About You – And That’s Great! Here’s Why. Free yourself from this misconception to fully become who you want to be.
The Bitcoin Revolution Would Be Meaningless Without the Preservation of These 5 Key Values. Don’t Trust, Verify.
Here Is Why Bitcoiners Hate Fiat Currencies So Much. When you see a solution to a major problem for humanity, you want everyone to benefit.