Russia may be excluded from the SWIFT banking system

Sep 15th, 2014 | By | Category: Journal
The SWIFT system is used by over 600 financial institutions including the Bank of Russia.

The SWIFT system is used by over 600 financial institutions including the Bank of Russia.












Bloomberg reports that the United Kingdom government is to recommend to the European Union that Russia be excluded from the SWIFT system of banking transfers.  This ranks up there as a proposal so stupid as to be on a level with invading Iraq (twice), Afghanistan, helping with regime change in countries like Libya, Syria and Egypt and encouraging Ukraine to join the European Union and NATO.

For anyone who doesn’t already know, SWIFT, is a cooperation protocol administered from Belgium that allows banks to securely transfer funds from one to another.  It is tightly administered and each transfer has to list the name and identity of the sender.  It currently links more than 10,000 banks and finance houses and operates in 210 countries.

Even if Russia was given some notice, as was Iran, this could be crippling for the Russian economy and most likely also for the Russian art market.  Iran was excluded from SWIFT system in February 2012 after a US Senate Banking Committee decision.  SWIFT admistrators initailly resisted the moved but caved in after a month.

If implemented how would a buyer from inside Russia transfer funds for an art acquisition outside of Russia or likewise how would a buyer outside of Russia buy something in Russia?  SWIFT has become so pervasive that for most banks and certainly all individuals this is the only way of doing cross-border currency transactions apart from transporting suitcases of cash.  Most people do not want to try the cash option anymore as banks are not keen to provide the cash and they certainly will not to accept it.

The Russians and Chinese are in talks to create an alternative system to SWIFT but these talks are in their infancy.  These two uneasy bedfellows are already in discussions about how to lessen their dependence on the dollar and have been pushed by aggressive US foreign policy into finally signing a massive oil and gas deal worth over US$30bn.

Surely the US does not want Russia to implode?  A huge country full of different religions and ethnic groups that stretches from Europe to China?  It has a vast nuclear arsenal and if it collapsed it would be like Yugoslavia times a hundred.  The danger is not that there could be a war with Russia, as the two huge nuclear powers cannot fight each other as this is mutually destructive.  Even the craziest regimes do not want to commit suicide as can be seen by North Korean restraint. The danger is that the West forces Russia to collapse.

The West seems to tolerate Russia as long as Russia follows the Western narrative precisely, with no allowance for Russian fears and hopes.  It is inconceivable that Russia would allow Ukraine to join NATO.  In Russian heads they know Ukraine is independent but in their hearts they still feel it is part of Russia, after all Kiev was once capital of ancient Rus and is still one of the centres of the Orthodox church.  NATO was established as an alliance against Russia and Russia wants to keep Ukraine independent and acting as a buffer zone between its southern borders and the West.

And why would the West want Ukraine in the European Union?  The European Union already has enough bankrupt economies to deal with such as Greece, Portugal and Ireland and the last thing it needs is another failed state with huge debts and endemic corruption. Has anyone from Washington or the UK government actually been down to the Donbas region and had a look at the polluted and decaying post-soviet Donetsk?  I did some business there about a year and a half ago and suffice to say, once was enough.

Putin’s actions may be popular for now in Russia but, as sanctions begin to bite and the Russian economy starts to collapse, then the Russian support for their fellow Eastern European Russians will cool.  And if the West gets too tough then Russia’s resource-based economy will eventually collapse.  Right now both sides seem to be escalating the rhetoric but it is hoped that cool heads will prevail before the point of no return.



Tags: Russia to be denied access to SWIFT transfer system, Russian Art Martket, Russian post sanction economy, US European UK sanctions against Russia

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