Nandini

Nandini

27-02-2022

05:03

Calls to exclude Russia from SWIFT are not new and have been there since 2014 (Crimea annexation). Moscow has been vigilant all along. Here I explain how SWIFT is NOT a payment system and how Russia is shielded-🧵 1/

Society for Worldwide Interbank Financial Telecommunications (SWIFT) is NOT a payment system, but a kind of international language in banking communications through which banks from different countries interact. 2/

Legally, it just controls the transmission system of banking information exchange- only messages. It is based in Brussels and is overseen by G-10 Central Banks. 3/

So, documents passing through SWIFT are files in format of XML- which are convenient and easy to read. 4/

In 2014, the Central Bank of Russia created its OWN messaging system- System for Transfer of Financial Messages (SPFS) to replace SWIFT. As of 2020, SPFS traffic is almost 13 million messages per day. More than 400 financial institutions are a part of Russian SPFS. 5/

What happens when a country is disconnected from SWIFT? > Financial Transfers and payments WILL continue, but with delay. However, banks will no longer receive information (messages) about senders or recipients of international payments. 6/

To overcome this issue, all interested foreign banks and institutions will join Russian SPFS. 7/

Remember : SWIFT is a commercial product and business interests of its participants are often larger than politics. 8/

Let’s say Russian SPFS has some constraints. In that case, Chinese developed CIPS (Chinese Cross-Border Interbank Payment System) can serve as an alternative. CIPS is already being termed as regional alternative to SWIFT, especially in Eurasia. 9/

Back in 2018, dissatisfied with Washington’s imposition of sanctions in Iran, EU launched INSTEX (Instrument for Supporting Trade Exchanges) as an alternative to SWIFT for humanitarian trade with Iran. This means TRADE and PAYMENTS can continue without SWIFT. 10/

Where the real danger is then? > Russia will only be worst hit when all foreign banks block all foreign currency accounts for all Russian Banks, as in case of Iran. In this case, what will be the alternative for Russia? Wait for the best part… 11/

> Central Bank Digital Currency- or Digital Rubal (Cryptocurrency) is the answer. Here, Central Banks will be able to move currency among themselves directly without any network of correspondent banking or messaging system. This will also reduce dollar’s hegemony. 12/

Once CBDC of Russia kicks in, SWIFT will become unnecessary. Putin knows what he’s doing and he’s well prepared. 14/14 -x-


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