Swift System Alternatives

November 1, 2022 by
Ahmed Hatem

In February 2022 the Russian- Ukrainian war started which had significant effect on almost every country and as a result of this war the US and EU applied number of sanctions on Russia, the most effective on was banning Russian banks from the SWIFT system, on the other hand Russia Activated an alternative system to avoid to come over the banning from the Swift system. In this article we will shed the light on what is the SWIFT system and its alternatives.

What is SWIFT system?

As per the Washington post SWIFT system is the Society for Worldwide Interbank Financial Telecommunication, in deferent words its a member-owned cooperative, based just outside Brussels, founded in 1973 to end reliance on the telex system for banking communications. As the Gmail of global banking, SWIFT delivers secure messages among more than 11,000 financial institutions and companies in over 200 countries and territories, directing trillions of dollars in transactions. The message traffic 42 million a day on average last year includes orders and confirmations for payments, trades, and currency exchanges. SWIFT is overseen by the National Bank of Belgium and representatives from the U.S. Federal Reserve System, the Bank of England, the European Central Bank, the Bank of Japan, and other major central banks. 

What are the consequences of banning Russian Banks from SWIFT? 

The aim is for Russian companies to lose access to the normal smooth and instant transactions provided by Swift, disrupting all its payments, specially, payments for its valuable energy and agricultural exports which is consider the corner stone for the Russian economy.

Based on that Russian Banks now have to deal directly as bank to bank without using SWIFT system, in addition to that Russian Banks can’t deal with any other banks as they can’t communicate with each other, which is considering full suffocation of the Russian economy.

Accordingly, Russia’s economy and society are being hit by so many different sanctions, and by the war itself, that it’s difficult to disentangle their effects.

Adding to the challenge, Russian banks suspended monthly reporting of financial information when the war began. According to a March 31 report by independent Russian news agency Interfax, the central bank estimated that Russian banks may lose as much as 5.8 trillion rubles ($93.8 billion) in 2022 due to sanctions and from participating in measures to support the economy. Bloomberg News reported in May that an internal forecast by Russia’s Finance Ministry envisioned gross domestic product shrinking as much as 12% this year. The Finance Ministry called the report inaccurate.

Is Russia the first country facing banning from SWIFT?

No. Iranian financial institutions banned from SWIFT in 2012, after the European Union imposed sanctions on the nation over its nuclear program. As a result, Iran lost 30 percent of foreign trade, then the ban on Iranian banks has been lifted after Iran signed an agreement to limit its nuclear activities in 2015. And then the banned from SWIFT applied again in 2018 after the Trump’s regime killed the agreement and pressured SWIFT to follow suit.

Are there any alternative systems to SWIFT?

Yes, there are two alternatives to SWIFT, the first is “CIPS” - the Cross-Border Interbank Payment System- while is the other is the SPFS - Sistema Peredachi Finansovykh Soobscheniy -

What is CIPS and why it is was created?

According to Bloomberg, In October 2015 the Cross-Border Interbank Payment System “CIPS” was set up as a settlement and payment clearing system for transactions that use the yuan, also known as the renminbi, or “people’s currency.” The system is supervised by China’s central bank but is run by CIPS Co. Ltd in Shanghai. Ownership is spread among dozens of shareholders including state-owned Chinese financial institutions, exchanges and Western banks. Its use has steadily increased, with an average daily transaction value of 388.8 billion yuan ($61.3 billion) as of February, about a 50% increase from a year ago, according to data from the company.

It’s part of China’s strategy to encourage global usage of the renminbi, which remains small compared to the size of China’s economy. (The yuan was only about 3.2% of global transactions in January, according to SWIFT). It’s also seen as a way China is seeking to decrease its dependence on the Western financial system and use of the dollar, especially after the U.S. extended economic sanctions on Iran in 2010 and then sanctioned Russia for its invasion of Crimea in 2014.

What is SPFS?

As per Forbes, Russia already has its own bank messaging system, SPFS (Sistema Peredachi Finansovykh Soobscheniy), which was set up following the 2014 invasion of Crimea. The Financial Times reported in March that this is increasingly used by banks for payments within the Eurasian Economic Union – a group which includes Russia’s neighbors Armenia, Belarus, Kazakhstan and Kyrgyzstan. Iran has discussed joining this system too.

More recently, in June Russia’s Rostec said it had developed a blockchain platform called CELLS, which could act as a substitute for Swift.

Most Russian banks, as well as 52 foreign organizations from 12 countries, have access to SPFS, Russian Central Bank governor Elvira Nabiullina said on Monday, per Reuters.

Banks from the Germany, Switzerland, France, Japan, Sweden, Turkey, and Cuba were among those connected to SPFS, according to  March report from Coface, a French credit insurer.

"Until there was such a threat of being cut off from SWIFT, foreign partners weren't in much of a rush to join, but now we expect their readiness to be greater," Nabiullina said of SPFS.

Can UAE banks use SWIFT alternatives?

As per the Central bank, there is no restrictions to use SWIFT or any alternative system by any bank in the UAE thus any bank can use any system such as the SPFS or CIPS or SWIFT according to the discretion of each bank.

According to the Russian central bank any entity can use this system.  In order to interact using SPFS, a legal entity should send a filled-in application form with copies of its registration documents translated into Russian and certified by an apostille to SPFS@cbr.ru.

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