The European Union, the United States, the United Kingdom, and Japan have disconnected several Russian banks from the Swift network and imposed sanctions on the central bank. But is this enough? Russia can get around the sanctions.
According to experts, the exclusion of Russia from the international banking communications network Swift should not lead to complete financial isolation in the medium to long term. Because Russia expected sanctions from the West and prepared accordingly. There are several ways Russia can reduce the effectiveness of sanctions.
Russia’s Swift System: SPFS
Since then, Russia has taken precautions and created its own payments network with its neighboring countries: SPFS, a system that, although not as sophisticated as Swift, works on a very similar principle.
Exclusion from the Swift system could mean some disruption to the Russian economy, but not a stagnation. 400 Russian banks are already connected to the system. Neighboring countries such as Belarus, Venezuela, Iran and Turkey have expressed interest in using the system in the past.
“Of course, excluding Russia from Swift is annoying, but it is not dramatic or fatal,” said Anatoly Aksakov, head of the Russian Parliament’s Financial Markets Committee. International money transfers have been around before Swift, too.
There is also a Chinese alternative to Swift: CIPS. In the past year, China doubled the amount transferred through the network daily to 50 million dollars. While this is well below the $400 billion that changes daily via Swift, it clearly shows the potential.
China has been promoting for years to become more independent of the Swift system. Russia’s exclusion from the network may give new impetus to these movements.
China as a partner
Before the invasion of Ukraine, Putin was looking for partners. Russia has strengthened relations with China in particular in recent months, for example through a long-term gas supply contract or extensive trade relations, for example with wheat exports.
Before the Olympics, both statesmen publicly showed their solidarity. Putin’s project is also interesting for China: the state sees Taiwan as part of China, and the international community contradicts China’s position and affirms Taiwan’s independence. So China is likely to be watching Putin’s actions closely.
Putin can help, for example, with indirect payment transactions through China or the supply of high-tech products. However, as the conflict intensified, China publicly withdrew. At the UN Security Council, the country abstained from a vote on a resolution demanding Russia leave Ukraine.
The more isolated the West is for Russia on the international stage, the more distance China is likely to seek. The country is unlikely to want to risk doing business with the Western world.
Putin can also circumvent sanctions with cryptocurrency. Russia could switch to classic cryptocurrencies or try to dock the country with the new Chinese digital currency e-Yuan (eCNY), says Philip Sandner, an economist at the Frankfurt School of Finance and Management and one of the leading experts on digital. currencies.
“In the short term, alternative options toward crypto assets such as Bitcoin and Ethereum as well as e-Yuan remain theoretical in nature,” Sandner said. “Companies are not able to hold, send or receive bitcoins in Russia or anywhere else in the world.” However, this may look very different in the medium term. “A lot can be done in six to twelve months. But you won’t be able to do it in a few days.”
Ross S. Dillston, an anti-money laundering compliance expert, believes Russia has been preparing for financial sanctions for some time. “If the Russians decided – and I’m sure they already did – they decided not to use any currency other than crypto, they could bypass almost all of the sanctions,” he told CNN.
Crypto expert Timo Emden agrees that Russian billionaires are expected primarily to turn to crypto assets in order to circumvent any financial hurdles. “In the short term, Bitcoin and Co provide a convenient vehicle for parking and therefore protection from sanctions,” Emden says.
Difficulties with electronic yuan
Sandner sees greater obstacles in switching to Chinese digital currency, which was introduced at the Winter Olympics in China: “Until now, digital e-Yuan was only about local payment transactions. Until now, people and companies from abroad were working online there not in concentration “.
According to Emden, Russia could step up efforts to create its own digital currency. “Vladimir Putin has not recently indicated a tolerance for Bitcoin and Co,” the expert said, without reason.
The United States and Europe are likely to increase their regulatory efforts regarding Bitcoin and Co. in the future. “If Russia succeeds in using crypto assets to participate in the real economy despite Swift’s potential exclusion, there is a risk of a global regulatory shock,” Emden says.
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