The Bank of Russia has forbidden Russian financial institutions from using the SWIFT messaging system for transactions. Based on the reports, from October, Russian banks will be required to only use domestic services for transferring messages on financial transactions.
The use of SWIFT will only be for international payments.
SWIFT for International Payments Only in Russia
SWIFT entails a vast, secure messaging system that allows banks and other financial institutions to send and receive encrypted information globally. This mainly helps in cross-border and cross-currency interbank transactions.
Based on claims by the Russian regulator, SWIFT will only be for international payments. As such, there will be reliability, continuity, and security of data exchange when conducting intra-Russian transactions.
The transmissions of information on such transactions will now need to be transmitted through the Bank of Russia’s banking systems, services of third-party Russian companies, or via the Bank of Russia’s financial messaging system, SPFS.
The SPFS will act as a substitute for SWIFT on the domestic market. The coverage of SPFS, compared to that of SWIFT, still lags. However, the spread of SPFS has been gaining traction in recent months.
As a response to the Western sanctions, which disconnected the country’s largest banks from the SWIFT system, Russia had to start seeking alternatives in dealing with foreign partners.
Several banks in Russia are disconnected from SWIFT, including Sberbank, VTB, Otkrytie, Vovikombank, Rossiya, and MKB.
However, there are banks not disconnected but are under blocking sanctions from Western countries. They may, however, face difficulties when using the system over time.
The move is seen as a step to de-dollarize the world economies. We are yet to see what this brings.
China and Russia Get Warm and Cozy
This news comes shortly after China’s president, Xi Jinping visited Russia for the first time since it invaded Ukraine.
It is no coincidence that China and Russia are among BRICS, the new emerging world economies, projected to be the next superpowers by 2050. US-Russia and US-China relations have been deteriorating over the years as fears of war between the USA and the two superpowers become more real than ever.
More hushed than the power shifts happening in the east, is the migration of global finance. Traditional finance is moving from the legacy banking system to Distributed Ledger Technology (DLT) and will run on Ripple (XRP) technology. Russia discontinuing the use of SWIFT in their country is no accident. It is a calculated move to phase out SWIFT and bring in cross-border payments and reporting (CBPR+).
Vincent Munene is a freelance writer and a great blockchain enthusiast. Blockchain has changed his life in terms of financial freedom and in return, he likes to educate people and keep them up to date on everything blockchain. He is a Biochemist by profession and also loves to play the piano.