Kicking Russia Out of SWIFT Will Have Enormous Geopolitical Ramifications

It is amusing how deluded most of the American ruling class is when it comes to foreign policy. From their use of conventional military force to geoeconomics pressure, American foreign policy apparatchiks are obsessed with maintaining global primacy. Consequences be damned.

One of the most notable examples of the US’s fixation with maintaining world domination is its recent attempts to cut Russia off from the SWIFT banking system. It has entertained this move in light of speculation that Russia will invade Ukraine.

As Antonio Graceffo of Epoch Times asserted, this move “would wreck Russia’s economy, driving the country closer to China.”

SWIFT refers to The Society for Worldwide Interbank Financial Telecommunication, which was set up in 1973. This is a communication platform for banks, brokerages, and financial institutions to process payments internationally.  

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Annually, SWIFT facilitated the transmission of roughly 10 billion messages between 11,000 financial institutions in over 200 countries and dependencies. This system processes trillions of dollars in payments.

Belgian and European law governs the SWIFT system. 

G10 central banks oversee SWIFT as well. As Graceffo observed, SWIFT is not obligated to meet American demands given how it falls under the European legal umbrella.

However, Washington can still apply pressure on the platform to comply with its demands. The US did so in 2012, when Washington wanted Iranian banks kicked out due to economic sanctions.

The US’s influence over SWIFT is massive because approximately 80% of global trade is conducted in dollars and most of those dollars go through SWIFT, to later be cleared in the US banking system.

To make SWIFT comply, the US just has to threaten to take its own banks out of the system.

As those with any deep knowledge of geopolitics know, the US’s foreign policy ambitions largely align with those of the United Kingdom. Naturally, the UK has jumped on the bandwagon to call for Russia to be booted from SWIFT. In 2014, for example, the UK offered a proposal to European leaders to kick Russia out of SWIFT.

In April 2021, the European Parliament passed a resolution to block Russia’s access to SWIFT should it use military force to attack Ukraine. 

Back in 2014, when Russia was potentially facing exclusion from SWIFT, Dmitry Medvedev, Russia’s Prime Minister at the time, threatened that such a move would be “a declaration of war.” 

Medvedev’s firm response made sense at the time due to the fact that there would be no way to send the money across borders.

Graceffo observed that “When Iran was removed from SWIFT, the country experienced difficulty, but not a catastrophe, because it was only somewhat involved with the global economy.” 

By contrast, Russia would allegedly be more impacted by getting kicked out of SWIFT due to its greater integration with the international system. In effect, it would be rendered unable to sell oil and natural gas exports. 

In addition, Graceffo argued that the ruble would fall and Russia could potentially suffer significant capital outflows, Former Finance Minister Alexei Kudrin contends that Russia losing access to SWIFT could see Russia’s GDP fall by 5%. 

Although it is dependent on SWIFT, Russia does have some fallback options to cushion its fall in the case it’s kicked out of the system.

When Russia intervened in Ukraine during 2014, the US threatened to take it out of SWIFT. In response to this, the Kremlin called for the development of a domestic financial-communications platform. This system in question, the System for Transfer of Financial Messages (SPFS), the Russian counterpart to SWIFT, boasts having over 400 member banks throughout former Soviet Union republics, which handles more than 20% of domestic transactions.

This Russian answer to SWIFT is still limited in scope. SWIFT operates 24 hours a day, 7 days a week. On the other hand, SPFS is only operational from Monday through Friday, during normal Russian business hours. On top of that, the message size is significantly smaller.

In theory, SPFS could be grown and additional foreign countries could be allowed to join it.

Amidst the growing geopolitical tension kicking off between the US and its Eurasian rivals in Russia and China, China has taken proactive measures by setting up a SWIFT alternative, called the Cross-Border Interbank Payment System (CIPS). China hopes to internationalize the yuan through this system. 

CIPS could potentially be another option for Russia. Because of China’s greater economic clout, the yuan might be a more viable option than the Russian ruble for trade going across borders.

Cooperation between the two systems is possible, but right now it’s rather limited. As of now, 23 Russian banks have become a part of CIPS. By contrast, only one Chinese bank has become a part of the SPSF.

Back In 2019, Russian President Vladimir Putin and Chinese strongman Xi Jinping came together to figure out a way to circumvent the US dollar and the American-dominated SWIFT system.

Some of the options the two countries have entertained consist of de-dollarization, yuan digitalization, and alternative financial settlement and messaging systems, such as CIPS.

By 2019, Russia had gotten rid of half of its dollars, and up its yuan holdings to 15% of its reserves. 

Replacing the dollar is no easy task, however. Graceffo noted the following:

Even the euro, however, cannot replace the dollar as the primary international currency, as there are three benefits to the dollar that no other currency offers. First, the dollar generally remains stable in the face of inflation. Next, no country can match the sheer size of the U.S. market or the volume of the U.S. currency. And finally, U.S. financial markets are deep, liquid, and transparent.

One of the main issues for the Eurasian powers is that the US government can deny sanctioned foreign entities the ability to access dollar clearing and dollar settlement. 

The US government has the power to blacklist prominent Russian banks and Russian sovereign wealth funds, effectively making it impossible for Russia to do business in American dollars. Even in the case that Russia starts using euros, euro-denominated transactions must go through SWIFT. 

Graceffo stressed that the “United States has considerable influence over SWIFT because U.S. dollar clearances account for 79.5 percent of inter-regional currency transactions.”

A Russian removal from SWIFT would, on paper, be pretty devastating. Countries in the European Union like Germany would suffer great economic damage because of how dependent it is on Russia for oil and natural gas, in addition to other economic activity. 

Graceffo concluded with the following observation:

Russia is China’s number two supplier of oil, and also a major supplier of natural gas and coal. Even if Russia is removed from SWIFT, the two countries will most likely find a way to continue to trade. This will make Russia even more economically dependent on China, pushing it deeper into the Chinese orbit.

Indeed, the geoeconomic and geopolitical landscape of the 2020s is fundamentally different from the 1990s, when America was in its “unipolar” moment. Geopolitical analyst Alexander Mercouris has stressed this for years, with him noting last year that Russia is becoming well-prepared for a potential post-SWIFT existence. 

Anytime the US tries to mix it up with Russia, it will invariably push it into China’s arms, thus creating a balancing coalition of countries against American hegemony. US policymakers should reassess their foreign policy actions and pursue a foreign policy that prevents countries from weaponizing migration against the US and establishing parasitic economic footholds by foreign actors.

Personally, I’m not so keen on carrying out containment against China. If anything, we should only use geoeconomic tools like tariffs and stop migration from China to the US, the latter is a tool the CCP uses to project influence inside the country.

None of this requires a massive military response or clunky nation-building efforts. However, we’re dealing with political hacks when it comes to foreign policy decision-making in Washington, so we can’t expect much in terms of rational solutions from them.