China says SWIFT sanctions are not fatal to Russia

The Prelude to the Dismantling of Dollar Hegemony... Shooting Oneself in the Foot
China's Payment Network, Barter Trade, and Indirect Payments via Proxy Banks Support Russia

[Asia Economy Beijing=Special Correspondent Jo Young-shin] Chinese media outlets have predicted that the card of expelling Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment network by the United States and the European Union (EU) will not be a fatal blow to Russia. They also claimed that this sanction would lead to the dismantling of the dollar hegemony.

Photo by Xinhua News Agency Capture

Chinese state-run media such as Xinhua News Agency and Global Times reported on the 28th that the US and the EU have imposed strong financial sanctions by excluding some Russian banks from SWIFT.

SWIFT is a financial payment system used by more than 11,000 financial companies and institutions worldwide. Being expelled from SWIFT would make Russia's trade impossible. The SWIFT expulsion is considered a financial nuclear weapon-level sanction and has previously been applied to countries like Iran and North Korea.

However, it is expected that this SWIFT sanction, which is limited to some Russian banks, and the fact that the EU will also suffer serious damage, will not cause a significant shock to the Russian economy.

It is also anticipated that energy payments, such as for natural gas, will be excluded from the SWIFT expulsion.

Global Times cited government-affiliated scholars saying that while SWIFT expulsion is a strong sanction, Russia has long prepared for financial sanctions from the West, including the US, by establishing its own payment system, the Russian Financial Messaging System (SPFS), since 2014.

However, since this sanction does not target the entire Russian financial sector, the US and the EU have left some room for maneuver, the report said. The media analyzed that if all Russian financial institutions were excluded from SWIFT, the EU could suffer damage even greater than Russia.

Yang Jin, a researcher at the Chinese Academy of Social Sciences, explained, "This measure does not target all Russian banks," meaning that the EU still has concerns about a complete SWIFT expulsion of the entire Russian financial sector. He added that expelling the entire Russian financial sector could further provoke Russia.

Shi Junyang, a professor at Shanghai University of Finance and Economics, predicted, "If SWIFT exclusion measures are applied to the entire Russian financial sector, 70% of Russia's overseas transaction payments could be halted," and the EU, which depends on 40% of its natural gas from Russia, would also suffer greatly.

Tan Yaling, director of the China Foreign Exchange Investment Research Institute, said, "Expelling Russia from SWIFT is like shooting oneself in the foot," adding, "If the Ukraine crisis calms down, it will be difficult to bear the economic consequences of the SWIFT expulsion."

There is also a forecast that this SWIFT sanction could act as a catalyst accelerating de-dollarization. Global companies will have no choice but to seek transactions with Russia in currencies other than the dollar, which is seen within China as a hopeful sign marking the beginning of the collapse of dollar hegemony.

Global Times reported that Russia has long reduced its dependence on dollar payments by providing huge tax benefits to domestic export companies using the ruble instead of the dollar. It also claimed that the Russian financial sector is connected to China's own Cross-Border Interbank Payment System (CIPS), which could serve as an alternative to SWIFT.

Global Times forecasted that through an increase in Russian companies using CIPS, barter trade, and SWIFT circumvention via correspondent banks, Russia could recover about 50% of its trade losses.

This content was produced with the assistance of AI translation services.