Sberbank, Russia’s largest bank, is banned by the SWIFT. What this means ?

Russia’s largest bank has been banned from the SWIFT payment messaging system, European Commission President Ursula von der Leyen announced Wednesday. Sberbank is one of three Russian banks that will be sanctioned under the European Union’s sixth sanctions package against Russia after invading Ukraine in February.

They have joined VTB Bank, Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, and development bank VEB Russia on the list of blocked institutions of SWIFT, a system that facilitates cross-border payments.

The announcement of sanctions on Wednesday also includes an EU ban on three Russian national broadcasters and a proposal to stop Russia’s oil imports by the end of this year. The Ukrainian government called for a total ban on Russia’s access to the international banking system after Russia invaded the country.

In this way, Russian bank customers cannot make transactions abroad because they are no longer temporarily connected to the SL international banking system. What is the SWIFT stands for Society for Worldwide Interbank Financial Telecommunication, a secure messaging system that facilitates fast cross-border payments. 

A standardized system of secure messaging is highly trusted, allowing banks to process large numbers of transactions very quickly.The Belgium-based system was founded in 1970 as a cooperative of thousands of financial institutions that use it. It has become the backbone of international finance. In 2020, around 38 million messages were sent each day over the SWIFT platform, according to its Annual Review. Each year, trillions of euros are transferred using the system.

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While there are alternatives for example, Russia and China operate their own systems that work in similar ways SWIFT is the most used worldwide. Just like a cellular communication system, when one is experiencing problems, it does not mean that mobile phones cannot operate properly.

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It is very likely that Russia can still carry out transactions between countries with the help of banks located in China. They have a good political relationship and have a banking system that works in tandem with SWIFT between the two countries.

Banning Russian banks from the SWIFT makes it very difficult to access financial markets around the world. As a result, it will be much more difficult, if not impossible, for Russian companies and individuals with accounts in affected banks to import and export goods, borrow and invest abroad. prizes. The ban on Russian banks is not the first in the world. Some Iranian banks were banned from the SWIFT in 2019 under US sanctions. 

The country as a whole stopped access between 2012 and 2016. Also approved by the Central Bank of Russia. In addition to removing access to SWIFT from several commercial financial institutions in the country, the Central Bank of Russia has also been sanctioned.

That way it is very difficult for Russia to be able to take its foreign exchange reserves in other countries. The European Commission said sanctions would prevent central banks from “developing foreign exchange reserves” and effectively block the Russian government’s foreign exchange reserves from exceeding $ 600 billion.

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The effects of sanctions initially caused the ruble to fall 30% against the US dollar, prompting the Russian central bank to raise interest rates to 20% to avoid the risk of devaluation and inflation. 

The Russian currency recovered to prewar levels against the dollar. It remains to be seen if international sanctions against Russia can reduce Russia’s move in combat in Ukraine. As we know earlier, the Russian currency has risen again after receiving guidelines on benchmark interest rates from the Central Bank of Russia.

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