Ukraine wants SWIFT to cut off Russia’s central bank

The National Bank of Ukraine has asked global financial messaging system SWIFT to disconnect Russia’s central bank, effectively cutting off the regulator’s ability to conduct international transactions.

“The National Bank of Ukraine appealed to the leadership of the international SWIFT system with a call to disconnect the Central Bank of Russia from the financial messaging system. This will strengthen the international financial isolation of Russia and become an effective tool for maximum counteraction to Russian aggression in the financial sector,” the statement reads, as cited by RIA Novosti.

After the start of Russia’s military operation in Ukraine, the US and its allies began restricting and banning Russia’s largest banks and state-owned companies, and froze around $300 billion in Russia’s forex reserves. While the EU banned operations to manage reserves and assets of the Bank of Russia, European countries are still allowed to carry out transactions with the regulator in cases of urgent need.

Earlier this month, the EU disconnected seven Russian banks from SWIFT. The list includes VTB, Rossiya, Otkritie, Novikombank, Promsvyazbank, Sovcombank, and VEB.RF.

SWIFT itself is not a payment system, but an electronic document management tool. Using it, banks can send orders to their foreign partners and correspondent banks for currency transfers, as well as confirming transactions and issuing guarantees for their clients.

Disconnecting the Russian central bank from SWIFT could sever the regulator’s ability to conduct international transactions. For instance, it may affect Russia’s ability to repay its sovereign debt, operations with which have, for now, not been subject to sanctions. Cut off from SWIFT, Russia could still pay its obligations in rubles, but international credit rating agencies have said that this may constitute a default, which would make borrowing funds for Russia in the future more difficult and expensive.

However, SWIFT has alternatives. In Russia, it is the SPFS (Financial Message Transfer System), which has similar functionality and allows the transmission of messages in SWIFT format. China, which has no plans to cut ties with Russia, has its own payment system, CIPS (Cross-Border Interbank Payment System), while other countries, including India, have been working on setting up payment mechanisms which would allow national currency transactions with Russia.

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