Russia’s economy ‘in crisis’ as banks formally cut out of Swift

The EU has ordered Swift to disconnect Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, Vnesheconombank and VTB Bank, though other institutions including Gazprombank and Sberbank are still able to use the messaging system as they are needed for European nations to buy oil and gas from Russia.

Ratings agency Standard and Poor’s has said kicking banks off Swift helps “reinforce” the sanctions, as Russia has only limited means to make payments through alternative channels.

“Alternative systems have emerged in the past decade. For instance, Russian authorities have supported the development of what is known as SPFS, while Chinese authorities have developed the Cross-Border Interbank Payment System. However, these aren’t commonly used for US dollar and euro transactions, nor are they as globally accepted as Swift,” the agency said when the Swift decision was announced.

“Moreover, although Russian banks could switch to these alternative systems, their counterparties might not be as willing to participate. Another alternative is for Russian banks cut off from Swift to use intermediaries that are still connected to Swift or establish bespoke processes. However, the other sanctions already imposed on these seven banks materially reduce the practicality of these alternatives for a large number of counterparts.”

Analysts expect the sanctions to prompt other nations including China to investigate further the possibility of setting up alternative systems alongside their allies in further efforts to reduce their vulnerability from the global system which was in large part established by the western powers in the second half of the 20th century, giving democracies significant economic leverage over dictatorships.

It comes as German lender Commerzbank said it is cutting back links to the Russian economy.

“We have stopped new business in Russia and we are winding down existing transactions,” said a spokesman for the bank. “Of course we’re complying with sanctions.”

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