Two of the last pieces fell into place on Saturday morning, February 26th. Before Cipro, which confirmed that it will not block the decision to exclude Russia from the Swift system. Then theItalywho to President Zelensky – through Prime Minister Mario Draghi – communicated his intention to do the same, fully supporting the European Union’s line on sanctions against Russia, including those in the Swift sphere.
And so, piece by piece, Europe has also reached the positions expressed in recent days by the United States, Great Britain and Canada.
Ursula von der Leyen, president of the European Commission, explained on Saturday evening that she will propose to the European heads of state and government to exclude some Russian banks from the Swift system, and to paralyze the assets of the Russian central bank.
We will ensure that Putin no longer uses his war funds. We will paralyze the transactions of the Russian Central Banksaid von der Leyen, also specifying that the EU and the US they will prohibit the Russian oligarchs from using our financial markets.
Not only that: the agreement includes a commitment to put an end to the procedure that allows rich Russians linked to Moscow to become citizens of our countries and gain access to our financial systems through the so-called golden passports.
So far, that of expel Russian banks from the Swift international payment system it was a decision that seemed capable of splitting the West. On one side Joe Biden e Boris Johnsonwho said they were ready to adopt the measure, considered by many, but not all, to be the most drastic and effective to sanction the aggression of Vladimir Putin to Ukraine.
On the other, the Europeans, above all Germany, Austria,Italy e Ciprowho preferred to wait and take no less painful measures for Russian finance, without involving the messaging system on which about half of the information on cross-border payments travels, and which France has defined as the nuclear weapon of finance.
But what exactly is the Swift system?
It is a cooperative founded in 1973 whose name stands for Society for worldwide interbank financial telecommunication. Swift is based in Belgium and therefore complies with Community law. Before that, international money transfer and payment orders traveled by telex. Swift introduced a code system through which individual institutions issue payment orders securely.
It is therefore the transmission of information and guarantees, without the physical transfer of currency. In other words: not that transactions take place on the system; Swift’s function is to ensure that messages relating to a payment pass (and are certified) on the network to reach the creditor.
The transaction will then be paid directly between the institutions involved, on the accounts that each has with the others. It is a safe and quite efficient system.
Today around 11,000 financial institutions from over 200 different countries use Swift for their exchanges for a total of about 24 million messages in a year.
To date, only one country has been cut off from Swift: it happened in 2012 with Iran.
The difference in approach – at least up to now – between the US, Great Britain and the Europeans was not so much in the harshness of the response as to be given to the enormity of Putin’s action. It was above all in the different position in which the different countries find themselves: as we know, Germany, Italy and Austria are very dependent on Russian gas, due to errors and strategic underestimations of the past. Berlin, Rome and Vienna feared that if paying for gas supplies to Moscow became difficult, the Kremlin could have reduced or even ceased supplies. the fear expressed for example by Matteo Salvini: We need to evaluate everything thoroughly, because if you prevent payments between banks we no longer have gas, said the Northern League leader, however renewing his confidence in Draghi.
It probably won’t, there are other ways to pay your bills: they are more complicated, more expensive and their use could then become a push to strengthen alternatives to the use of the Swift.
Europeans also believed that the United States and the United Kingdom had other means of targeting Russian banks, since they are home to the two most powerful financial centers in the world, New York and the City of London.
This is potentially a bigger deal than even Germany signing on ? Cyprus is one of Russia’s biggest foreign investors (it’s Russians with Cypriot offshore companies investing back in Russia) and the second biggest bank in Cyprus is Russian https://t.co/nKOZfE1dg6
— max seddon (@maxseddon) February 26, 2022
Are there any alternatives to the Swift? S: they are expedients to settle payments more or less directly, even if they are less secure, slower and more expensive; the Mir payment system, launched by the Russian central bank in 2017; the Cross-Border Interbank Payment System launched in 2015 by China for transactions in yuan.
Beyond the instrument used, hitting Russian banks is probably one of the most effective sanctions to make those who declared war in Europe pay a high price.
If the United States decides to block access to the dollar world for those who transact with Russian banks, the effect could be devastating.
And today the big international finance knows that carrying out transactions in dollars on behalf of Russian clients on the London market (where two fifths of foreign exchange transactions pass, 2.7 trillion dollars a day) are high risk. Russian finance is now in a corner: it is dangerous to touch it.
Anglo-Saxons and Europeans will have to – together – decide with what means to damage it to the point of making the adventurist Putin waver.