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Xinhua: SWIFT Sanctions Not enough to Bring Russia to Its Knees

China has not yet taken sides publicly on Russia’s invasion of Ukraine, but its official Xinhua News Agency has commented on the impact of the expulsion of some Russian banks from the SWIFT system, stressing that the sanctions the West has imposed are not enough to bring Russia to its knees, but will harm the interests of Europe and the U.S. themselves.

A number of Western countries, led by the United States and the European Union, announced on February 26 that they would expel several Russian banks from the Society for the Worldwide Interbank Financial Telecommunication (SWIFT) system. This is by far the most serious financial sanction against Russia’s invasion of Ukraine.

Xinhua commented in one article, citing analysis that SWIFT sanctions are expected to have a greater impact on the Russian economy than before, but are “hardly effective enough to suppress Russia” and are “insufficient to bring the Russian economy to its knees.”

The article said that, in recent years, Russia has made efforts to build a financial firewall against several rounds of Western sanctions. For example in the 2014 Crimean crisis, it vigorously pursued an import substitution policy and further consolidated its dominant position of state-owned banks. Russia’s relatively low level of foreign debt and high foreign exchange reserves means that it is relatively “self-sufficient.”

The report also said that energy exports, which are considered the lifeblood of the Russian economy, have not yet been completely blocked, highlighting the dilemma of the West. The U.S. and Europe have yet to announce the SWIFT exclusion list, but the basic consensus is to maximize the impact on Russia and minimize their own damage, leaving room for the EU to settle energy transactions with Russia.

Xinhua claims that, if sanctions affect energy supply, oil and gas prices will further rise, exacerbating inflation in Europe and the U.S. and causing supply chain problems and possibly causing Russia to collect more revenue from energy exports. It continued, “And Russia’s exclusion from the SWIFT system does not mean it can’t trade. It is just that it will be more difficult and costly to trade.”

The article said that the Central Bank of Russia developed a local version — System for Transfer of Financial Messages (SPFS) in 2014. Currently 23 foreign banks are connected to the SPFS system. As of May 2021, 20 percent of inbound transfers in Russia are completed through the SPFS system. The SPFS system can replace SWIFT to a certain extent, but due to the habit of use and relatively few customers, the sanction will prompt some customers to use the Russian system.

Xinhua pointed out in another article that Russia’s exclusion from the SWIFT system will put pressure on the German economy. The direct investment of German companies in Russia is about 24 billion euros. After SWIFT is banned in Russia, it will be very difficult for German companies to conduct remittance and other business in the country. Although there are other alternatives, the process is more complex and more expensive. European companies may have short-term financial problems.

Source: Central News Agency (Taiwan), March 1, 2022