“An Atomic Bomb for the Capital Markets”

Russia’s suspension from the international banking payment system is reportedly off the table. Reason: Western states would suffer serious blowback.

BERLIN/MOSCOW/WASHINGTON (Own report) – In the discussion on western sanctions against Russia, suspending the country from the international banking payment system SWIFT is off the table, according to a report. Even though recently it had been contemplated to exclude Russia from the international banking payment system in case of a military escalation of the Ukraine conflict, it is no longer considered a realistic option, government sources contend. The expected damage for the West would simply be too high. The EU states, including Germany, would, for example, no longer be able to pay for gas deliveries from Russia, a suspe’nsion of deliveries could be the consequence. In addition, Moscow and Beijing already have their own payment systems, which could quickly become competition for SWIFT, if Russia is suspended and this would jeopardize the West’s dominance over the international banking payment system. If the report is confirmed, it would be a serious setback for the West’s sanctions policy, which would lose its most effective financial weapon. Sanctions against Russian banks are now being considered as an alternative.

Gas Supply in Danger

For some time already, experts have been warning of serious risks if Russia is suspended from the SWIFT international banking payment system. On the one hand, because of immediate economic dangers: Russians and Russian companies owe European banks US $56 billion. If Russia would, in fact, be suspended from SWIFT loans could no longer be serviced.[1] On the other hand, EU companies and financiers have €310 billion in assets in Russia. Its exclusion would thus directly impact European companies. Russian gas deliveries to the EU must be paid. If this is no longer possible the EU’s gas supply would be in danger. The consequence could be a dramatic increase in gas price on a global scale – at a time when energy prices have already skyrocketed.

Alternative Payment Systems

Cutting off Russia from SWIFT could also jeopardize US dominance over the international banking payment system. Since the first time Washington threatened Moscow with a no-SWIFT scenario in 2014, Russia has developed its own payment system (SPFS). SPFS is already in use in Russia and, although it still has limitations, it can be enhanced without substantial difficulties. It has been reported that Belarus, for example, is already in the process of gradually switching from SWIFT to SPFS.[2] China has also developed its own payment system (CIPS), which is already involved in financial transactions valued at one-eighth of the SWIFT transfers – with a rapidly rising trend.[3] Last year the governments of Russia and China announced that they would join forces against fierce US financial sanctions. With SPFS and CIPS at their disposals, they have the means to endure a suspension from SWIFT. In addition, they can provide payment systems for other states, which run into conflict with the West. The West’s weapons of sanctions would thus become increasingly dull.

Prepared for Sanctions

Alongside the short and long-term harmful effects on the West, Russia, according to reports, is now relatively well prepared for confronting western sanctions, and limiting their damage. For example, central bank reserves have soared more than 70 percent since late 2015 and now surpass US $620 billion. Dollar reserves make up about 16.4 per cent of total reserves, a bit more than the Chinese Yuan (13.1 percent). About a third of the reserves are in euros, and 21.7 per cent in gold.[4] Moscow additionally boosted its coffers by creating a state fund (National Wealth Fund) that accumulates surplus oil and gas revenue, with a volume of US $190 billion by the third quarter of 2021, with an expected US $300 billion by 2024. Government debt is equivalent to about 20 per cent of the GDP and is forecast to fall to 18.5 per cent by the end of 2023. Corporate loans from foreign lenders have slumped from US $150 billion in March 2014 to US $80 billion last year, while foreign ownership of Russian government bonds has dropped to 20 per cent, making Moscow less vulnerable – a result of US sanctions in 2019.[5]

“Leave SWIFT Untouched”

Since the beginning of the year, politicians and officials in government organizations have been warning that depriving Russia of SWIFT could develop a blowback against the western powers. For example, former US ambassador to Ukraine and current Vice President of the US Institute of Peace (USIP), Bill Taylor, was recently quoted with the observation that the measures would cause great damage to the Russian economy, but seriously hit companies in Europe as well.[6] At the beginning of the week, the designated Chair of the CDU Friedrich Merz urgently warned that suspending Russia from SWIFT “could be an atomic bomb for the capital markets and also for goods and services.” “I would see massive economic setbacks for our own economies,” Merz declared. “We would be damaging ourselves considerably,”[7] Merz warned. At worst, the measure will “break the back” of SWIFT. The CDU politician urged “We should leave SWIFT untouched.”

Sanctions against Banks

If a report in the German journal “Handelsblatt” is true, the question of shutting Russia out of SWIFT is off the table. Citing a not otherwise specified “government source,” the journal explains that the measure could “lead to a destabilization of the finance markets in the short term, and in the medium term boost the creation of alternative – non-western dominated – payment structures.”[8] Therefore, it will no longer be pursued. Whereas in Washington, it is said that all options remain open, the Handelsblatt alternately reports that western powers are now relying on threats of sanctions against Russian banks. However, the German government insists that exceptions be made, to allow payments for Russian gas supplies to the EU. Details are therefore, to be topics of talks US Secretary of State Antony Blinken will be having with Foreign Minister Annalena Baerbock and Chancellor Olaf Scholz on his trips to Kiev and Berlin, arranged on short notice.

“Prepared to inflict self-harm”

Regardless of the details about the forms sanctions may take, experts are warning that there can be no sanctions against Russia that will not also inflict damage on western countries. If the West’s sanctions are to be “effective,” the economic consequences at home – particularly in the EU – will certainly be meaningful, warns Tom Keatinge, a financial expert at London’s Royal United Services Institute (RUSI).[9] Keatinge does not mean this warning as an argument against the imposition of sanctions, but rather merely as a reminder to the West that “alongside the harm” it is committed to “inflicting on Russia,” it will need to be willing “to commit self-harm.”


[1] The hidden costs of cutting Russia off from SWIFT. economist.com 18.12.2021.

[2] Belarus Banks Readying for SWIFT Shutdown – Reports. themoscowtimes.com 14.12.2021.

[3] The hidden costs of cutting Russia off from SWIFT. economist.com 18.12.2021.

[4], [5] Max Seddon, Polina Ivanova: Moscow’s sanction-proofing efforts weaken western threats. ft.com 18.01.2022.

[6] Konflikt mit Moskau: Optionen des Westens. zdf.de 05.01.2022.

[7] Merz nennt Swift-Ausschluss Russlands „Atombombe für Kapitalmärkte”. tagesspiegel.de 16.01.2022.

[8] Martin Greive, Moritz Koch: Swift-Sanktionen vom Tisch: EU und USA rücken vom Ausschluss Russlands aus globalem Finanzsystem ab. handelsblatt.com 17.01.2022.

[9] Tom Keatinge: Sanctioning Russian Aggression: The West Must Accept Economic Self-Harm. rusi.org 15.12.2021.

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