The White House, alongside the European Commission, Canada, the United Kingdom, Germany and Italy, announced on Saturday evening that it would exclude certain Russian banks from the SWIFT payment system.
In a joint statement, the parties wrote that:
“This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally.” While also pledging the […] “restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in way that undermine the impact of our sanctions.”
To go further, Ursula von der Leyen, the current President of the European Commission, revealed this:
“… we will work to prohibit Russian oligarchs from using their financial assets on our markets. Putin embarked on a path aiming to destroy Ukraine. But what he is also doing, in fact, is destroying the future of his own country.”
Let’s unpack.
SWIFT is by far the largest financial messaging system used by over 11,000 institutions worldwide.
Following Russia’s invasion of Ukraine, the EU and its partners started issuing sanctions against both the country, its president – Vladimir Putin, and certain political representatives.
The exclusion of Russia from SWIFT is intended to reduce the country’s ability to liquidate assets and transfer funds between member institutions of the system. This decision is made with the aim of isolating and punishing the country.
In essence, without SWIFT, banks and their customers would find it much harder, if at all possible, to operate on a global scale.
What else is there?
Many reports suggest that Russia has been working on a SWIFT alternative for some time.
Earlier today, Asia Markets reported that there’s already an alternative that Russia can turn to – CIPS. An acronym for Cross-Border Interbank Payments System, this is China’s international payments solution, and it was first revealed back in 2015.
The report also points out that at least 23 Russian banks are already connected to CIPS.
Yet, China hasn’t exactly been very decisive in its actions during the conflict, which is hard to decipher. On one end, the country presented itself as a protector of sovereign independence, but on the other, it remains reluctant to denounce Russia’s actions.
Get into crypto
What does all this mean for cryptocurrencies? Well, that’s also hard to determine or predict.
Price discussions and speculations aside, I’m of the opinion that should Russia decide to turn to crypto as an alternative payments network, that would put tremendous strain on regulators in Western countries.
We see many legislative frameworks in developed countries where cryptocurrencies are under intense scrutiny. Last year is a stark example of this, as major crypto exchanges rushed to check their trading volume in an effort to avoid stiff penalties or become outlaws.
The position of the West on the current conflict in Ukraine is quite clear – they are doing whatever they can to cut off Russia’s financial arms from the rest of the developed world and even instituting personal sanctions. Should Russia turn to crypto, I think it’s quite clear that the regulatory climate will become harsher.
But that’s not necessarily bad news. In fact, many crypto proponents have been calling for clear regulations for a long time. In our podcast with BitMEX CEO – Alex Hoeptner, he said he thinks regulators will likely put crypto in the same regulatory basket as traditional assets, which he says is wrong. He is also of the opinion that rules are necessary for the industry to progress.
But it’s also not necessarily good news. It’s also important to consider a scenario where the West condemns cryptocurrencies as a pro-Russian tool to bypass sanctions.
As I mentioned at the start, it’s downright impossible to pinpoint (at least for me) the potential outcomes, but I guess one thing is for sure – we’re in great uncertainty.
