Brussels, 1 March 2022 (TDI): With the Russian declaration of military operation in Ukraine on the 24th of February and the subsequent escalation, imposition of sanctions as well as cutting Russia off SWIFT has been echoing in the news.
What is SWIFT?
SWIFT is a system that stands for the Society for Worldwide Interbank Financial Telecommunications. Society for Worldwide Inter-bank Financial Telecommunications is a Belgium-based cooperative organization providing services related to the execution of financial transactions.
These transactions include a safe platform for financial institutions to exchange information about global monetary transactions such as money transfers for cross-border payments.
This network facilitates and helps maintain a secure way of transferring money to help promote smooth global trading. Its headquarters are situated in La Hulpe, Belgium founded on the 3rd of May 1973, Brussels, Belgium with Javier Perez-tasso as its CEO since July 2019, as a limited liability co-operation.
SWIFT was created by Americans and Europeans where they could make sure to create a monopoly by not letting any financial institutions develop their own system to operate their financial matters.
SWIFT is being monitored by the National Bank of Belgium in partnership with major central banks around the world which includes the US Federal Reserves and Bank of England.
However, Iran was banned from SWIFT in 2012 as a part of sanctions over its nuclear program by losing its oil exports revenue 30%of foreign trade. The economic sanctions are generally believed to have helped weaken the Russian financial stature and intensify the challenges that Russia is already facing.
It is now evident that Russia launched a military operation in Ukraine. As a result, many Western countries imposed sanctions on Russia. Sanctions are not the sole solution to control and regulate the countries if they don’t follow up strategies and monitoring.
There are other means and ways to address the sanctions to originate trade by different channels of cheaper import. Russia has alternatives like System for Transfer of Financial Messages (SPFS).
What is SPFS?
SPFS stands for System for Transfer of Financial Messages. SPFS was inaugurated by the Russian Central Bank and was launched in 2014 when the world threatened to put SWIFT sanctions due to the annexation of Crimea.
It is a Russian equivalent of the SWIFT financial transfer system. The system was developed in 2014 when the United States (US) threatened to disconnect Russia from the SWIFT system after the annexation of Crimea in the wake of the Euromaidan coup.
The Euromaidan coup was sparked by the Ukrainian government’s decision to suspend the signing of the European Union-Ukraine Association Agreement instead of choosing closer ties with Russia and Eurasian economic plans.
The Russian Government aims to expand SPFS to developing countries such as Turkey and Iran. The SPFS system is considered as a backup plan, instead of being a replacement for the SWIFT network.
So far, 23 foreign banks are connected to the SPFS. These include banks from Armenia, Belarus, Germany, Kazakhstan, Kyrgyzstan as well as Switzerland.