After the penalties removed several Russian SWIFT banks international Payments networkMoscow is likely to seek alternatives, especially as Western officials threaten to expand sanctions if the conflict in Ukraine continues.
Russia could in theory try to replace SWIFT communications system who keeps international trade flows smoothly. But any alternative would be add significant costs and risks for russian companies, money transfer experts said. The impact on Russia would be a reduction in import and export volumes, at least in the short term where they added.
The society for Worldwide Interbank Financial Telecommunication (SWIFT) is a secure messaging system for banks, which facilitates fast cross-border payments. Senders of SWIFT’s secure messages can be sure they will be processed, car recipients are contractually liable if they fail to respond.
Russia has become one of top users of the systemhaving had a board headquarters since 2015 and with more more than 300 Russian banks using as the main method of communicating with domestic and international banks.
Here is an overview of potential alternatives and why it is not easy to replace SWIFT:
Russian messaging platform
Russian banks could move to an email system developed by the Russian central bank – System for Transfer of Financial messages (SPFS). Last yearle central bank was reported as saying that interbank traffic national could easily be transferred to this platform.
A spokesperson for the Russian Central Bank was not immediately available for comment.
But “the SWIFT analogue”, as a central bank calls it, has limits. It only operates during weekday working hours while SWIFT operates 24 hours one day, every day. Additionally, SPFS messages have size limitations, making them potentially less capable of handling more complex operations.
SPFS system also lack international connectivity.
“Currently, international services are limited to countries such as Armenia, Turkey, Uzbekistan and Kazakhstan,” Morgan Stanley analysts said this week.
Russian banks could in theory use SPFS messaging to send international payments to a connected person bank in one of the countries who belong to the network. This bank could then use SWIFT to direct instruction in the international banking system said Alistair Milne, professor of Financial Economics at Loughborough University.
But a sudden surge in transactions via such a route would risk attract attention of international regulators, thus deterring the non-Russian partner bank to continue this activity.
Professor Markos Zachariadis of University of Manchester, author of a book on SWIFT, said that even if regulators did not intervene, banks could soon find themselves ostracized by Western banks, which have become suspicious of engaging in activity considered to undermine sanctions.
China CIPS system
Another one possible response to a SWIFT ban would be for Russian banks connect to the Chinese payment platform CIPS. However, the Chinese platform can only be used for settle payments in yuan.
Morgan Stanley analysts said just 1.9% of international payments are made in Chinese currency, against about 40% for US dollars, which limited the effectiveness of CIPS as a method for cross-border financing trade.
Moreover, since CIPS itself relies on SWIFT network for its operations, graft on CIPS could also to be seen as a breach of a SWIFT ban, analysts say.
Indirect CIPs participants always need go through SWIFT to complete settlements.
Tailor-made bilateral systems
A more suitable SWIFT alternative for Russian banks would be set up tailor-made bilateral systems using telephones, fax or e-mail apps with a overseas partner who would take payment from importers of Russian goods and make payments to exporters to Russia.
Such as system was created by one foreign lender when Iran was cut off off SWIFT network by penalties linked to son nuclear program former Familiar SWIFT executive with says the case.
This required a small team of people payment processing on the base of send two faxes and make two phone calls for each operation.
But as effective as they are, these systems are also prone to error and face Security challenges. While SWIFT is plugged directly into a bank’s systems, faxes or WhatsApp messages may involve a manual transfer of The data.
Mistakes and Necessity for additional checks to avoid would increase costs and could reduce ticket unprofitable trades, industry experts said.
“It’s not an easy workaround,” Zachariadis said.
