Forty million messages every day

Swift as a weapon

Sanctions imposed on Russia will hurt, but not only are there definite limits, they were long expected, writes Yassamine Mather

Soon after Joe Biden’s February  24 triumphant press conference announcing “new sanctions against Russia”, most commentators were surprised that there was no mention of any sanctions to be imposed on the Russian state and its oligarchs relating to the use of Swift cash transfers.

What is Swift, and why is it important? Let us quote the organisation’s own description of its role:

Swift is the way the world moves value. We do this every single instant of every single day, right across the world. No other organisation can address the scale, precision, pace and trust that this demands.

Swift is unique. We were established to find a better way for the global financial community to move value - a reliable, safe and secure approach that the community can trust, completely.

Although its headquarters is in Belgium and it is overseen by the National Bank of Belgium, it was established by US and western European banks in 1973 and is overseen by the US Federal Reserve, the Bank of England and a number of other central banks. It is basically an instant messaging banking system, linking 11,000 banks and financial institutions in 200 countries, and processing something like 40 million messages a day.

In the past the US and its allies have used different levels of restrictions regarding access to Swift, depending on who was the offending country and how much punishment they intended to inflict. In the case of Iran’s Islamic Republic, it was banned from Swift in 2012 as one of the measures instigated by the United Sates and followed by its allies to punish Iran for its nuclear programme. The country’s income from oil export revenues was halved, and 30% of its foreign trade disappeared overnight.

In the case of Russia, however, the situation is more complicated. Had the US imposed a similar ban on Russian banks and financial institutions, Germany’s payments for its fuel would have stopped and therefore the country’s supply would have been seriously hampered. The price of oil and gas in Europe would have spiralled even further. Instead, on February 27 just a few Russian banks were cut off from Swift - including, predictably, the two major ones, Sberbank and VTB. In addition, the assets of the Central Bank of Russia were frozen.

UK ministers, knowing full well that a complete Russian ban on Swift is unlikely for the time being, have tried to appear more hawkish than the US by calling for the implementation of more widespread Swift restrictions. Nevertheless, the sanctions imposed were sufficient to cause a run on the Russian ruble, which tumbled to a record low. The Russian authorities had no choice but to impose the temporary closure of Moscow Exchange’s stock and derivatives trading.

We also heard sanctimonious statements from leading UK and EU politicians about prohibiting “Russian oligarchs from using their financial assets on our markets”. Of course, for decades all these countries - in particular the UK - have been happy to launder dirty Russian money. The Conservative Party previously had no qualms about accepting large donations from oligarchs.


However, it is clear that Russia was expecting sanctions and had taken a number of steps since 2014 to reduce their impact. One of its important trading partners is, of course, China. As of December 2021 China’s purchase of oil from Russia surpassed its purchases from Saudi Arabia. In late February, days before the military campaign in Ukraine began, Russia announced a deal to sell 100 million tons of coal to China for an estimated $20 billion, as well as another to buy Russian wheat, despite concerns about plant diseases.1

A few hours after the announcements regarding western sanctions, Wang Wenbin, a Chinese foreign ministry spokesperson, clarified China’s position regarding the use of sanctions: “Sanctions are never an effective way to solve the problems,” he said. “I hope relevant parties will still try to solve the problem through dialogue and consultation.”

In fact, in the last few weeks, China has tried to soften the potential economic repercussions of new sanctions against Russia. According to AidData - a research lab based at William and Mary University in Virginia - between 2000 and 2017 Russia was the largest recipient of loans from official Chinese institutions, totalling no less than $151 billion.2 China-Russia trade was estimated to be valued at more than $145 billion in 2021 - a record high.

Interestingly two of the institutions involved are the China Development Bank and the Export-Import Bank of China. Both are believed to be insulated from western secondary sanctions and subsequent penalties because they have no dealings with US business interests and do not depend on the US dollar. Of course, as international commercial institutions, they cannot avoid dollar transactions, but it does look as if China has deliberately isolated aspects of the workings of these two banks as part of a general policy to reduce the use of the dollar in bilateral relations with Russia. ‘Decoupling’ from the dollar remains a long-term aim in China, whereby a bipolar global financial system would be created: one based on the US dollar, the other on the renminbi.

China was already a major purchaser of Russian oil and gas, and it will now undoubtedly make use of the new situation to increase its purchase of cheap Russian fuel - as long as it can avoid any obvious breaking of international sanctions. This is exactly the policy followed by Beijing regarding sanctions against the Islamic Republic of Iran and they have learnt from that experience. According to David P Goldman, writing in Asia Times,

China’s Cross-Border International Payments System (CIPS), founded in 2015, is still under development and includes only 80 foreign banks. But there is no reason in principle that CIPS can’t substitute for Swift. And if Russia successfully shifts its trade payments out of the dollar system, the blow to American prestige and power would be enormous.3

China has considered a number of policies in this respect. According to estimates produced by the China Centre of the US Chamber of Commerce, this will cause a major reduction in US gross domestic product. In terms of aviation, China plans to reduce - and in the long term eliminate - its purchase of US aircraft and commercial aviation services. It is estimated that this will reduce US output by between $38 billion and $51 billion annually. When it comes to semiconductors, China also seeks to achieve self-sufficiency, and the US sector in this field could be looking at $54-$124 billion in lost output. Similar policies are pursued in relation to the US chemical and medical devices industries and, in terms of total trade, the US could end up with a loss of $190 billion in GDP by 2025, resulting from changes in China. All this was, of course, in the pipeline before the current war in Ukraine. These are long-term policies and have a very clear aim: challenging US hegemony by increasing China’s economic power.

In many ways that is why Russia’s invasion of Ukraine has created a dilemma for Beijing. It is clear that China wants to keep close relations with Russia in order to increase the resulting political and economic gains. For Beijing, however, China’s long-term economic and political aims come first: the country’s leadership will put China’s own interests far above any ‘strategic partnership’ with Russia.

  1. www.nytimes.com/2022/02/24/business/ukraine-russia-wheat-prices.html.↩︎

  2. docs.aiddata.org/ad4/pdfs/Banking_on_the_Belt_and_Road__Insights_from_a_new_global_dataset_of_13427_Chinese_development_projects.pdf.↩︎

  3. asiatimes.com/2022/02/chinas-swift-alternative-may-undercut-us-sanctions.↩︎