Disabling the nuclear option stayfocused

Removing Russia from Swift would certainly cripple its economy, but itвЂ™s no magic bullet. In 2012, with the help of an EU directive, Swift blocked Iran, to contain its nuclear program. The US threatened to lock China out of the dollar system if it failed to follow UN sanctions on North Korea. China has created its own Cross-Border Interbank Payment System (CIPS). There are also many new contenders emerging from the fintech world.ДЄ number of countries, including China, Russia, and Iran, have taken steps to limit their dependence on the dollar and have even been working to establish alternative payment systems. There are lots of networks out there for transactions and payments today. Is this realistic and how would that even work? Now thereвЂ™s talk of Russia using crypto as an escape route to circumvent sanctions. Russia has also been working on its own central bank digital currency (CBDC) in an effort to give its domestic banks international liquidity should expulsion from Swift ever materialized. But there have been reports to integrate the network with payment systems in China and India and expand it to countries like Turkey and Iran. SPFS is extremely limited, itвЂ™s only operational during weekday working hours and its messages are limited to 20 kilobytes in size. The Central Bank of Russia developed its own Swift equivalent, SPFS, which is used by around 400 institutions, mostly banks, and it only works within Russia. They were the fourth largest behind China, Japan, and Switzerland at the end of 2020, with $600+ billion in foreign currencies and gold. Russia has one of the largest foreign currency and gold reserves in the world. It would be naive to think that the threat didnвЂ™t prompt Russia to examine all the possible what-ifs in preparation for such a scenario and develop its own alternatives to counter a future expulsion from Swift. While it did not happen in the past, Russia was threatened with a Swift expulsion in 2014 when it annexed Crimea.

The ban from Swift is sometimes called вЂњthe nuclear option,вЂќ and would curtail Russian banksвЂ™ access to foreign liquidity in the form of the worldвЂ™s major currencies such as dollars, euros, or yen. Since every day is marked with new sanctions against Russia, the latest was on Saturday when key Russian banks were banned from the Swift financial system. Russia launched an all-out attack on Ukraine this Thursday, changing the face of Europe forever.

Disabling the nuclear option stayfocused