by Philip Pilkington
Monday, 28
February 2022
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16:00

Banning Russia from SWIFT will hurt the West

The sanction will only push Putin into the arms of China
by Philip Pilkington
Best of enemies. Credit: Getty

“Anyone can create money; the problem is getting it accepted.” So said the brilliant economist, Hyman Minsky. This is a crucial point: you or I can create an IOU with a pen and a piece of paper and offer to someone for goods or services. But who will accept it? Your best friend might. But take it to a supermarket and you’ll be laughed out of the shop.

The credibility of money relies on what economists call ‘network effects’. A network effect is a phenomenon where if an increased number of people use a service, its value increases. It is something that social media companies like Facebook and Twitter try to maximise. If people left Twitter en masse, for example, its value as a service would collapse.


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A payments system like SWIFT also depends on network effects. The technology behind SWIFT is easily replicable. Its value rests on the fact that it is widely used. That is why threatening to remove Russia from SWIFT could cause potential damage to the world.

Russia is, after all, a country that has vast energy reserves that are crucial for the European economy. While in the short run, the loser from a Russian SWIFT ban is Russia and Russian banks, in the long run the likely loser is SWIFT itself.

China already has an alternative to SWIFT. It is called CIPS and it is used to clear transfers in Chinese renminbi. It is no secret that the Ukraine conflict is creating a de facto alliance between China and Russia and so it seems logical that if Russia is thrown out of SWIFT they will turn to a Chinese alternative.

The Russian SWIFT ban appears to have a carve out for energy-related transactions. But if Russia turns to CIPS for non-energy transactions, how long before they switch their energy transactions over? If CIPS is already used in renminbi trade, the additional use for Russian energy transactions would mean that many in Europe would have to adopt it alongside SWIFT.

The long-run outcome then, would be a viable alternative to SWIFT operating alongside SWIFT. An even more dire prospect would be an increasing dominance of renminbi transactions in global trade. The United Kingdom should pay close attention to this because its economy rests almost entirely on London’s strength as a global financial centre.

Decisions made under this kind of emotional and geopolitical pressure rarely pan out well. The political environment right now is combustible — and social media is making it worse. But there are grave risks that may seem beneficial in the short run, but will hurt us in the long run.

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Martin Bollis
Martin Bollis
9 months ago

But like the covid response then, act in haste repent at leisure.

It’s usually the population that does the bulk of the repenting.

Ian Moore
Ian Moore
9 months ago

All these articles are well and good but should we then just let the likes of Putin go about the world killing indiscriminately so that we aren’t put out at all. Is the be all and end all money?

The equation we should always prize above everything else is the value of a human life. A lot less if the likes of Putin have their way I’d suggest.

Johann Strauss
Johann Strauss
9 months ago
Reply to  Ian Moore

Perhaps it’s time for you to have a more realistic perspective of the situation in Ukraine vis a vis Russia, and also realize why this has happened. Poke the bear enough times and eventually you will get a reaction. As Newton said “every action has an equal and opposite reaction”. Threaten to push NATO eastward, encourage Ukraine in this regard, encourage Ukraine to join the EU (and Ukraine has just applied to do so today), and you end up with the current situation. And it’s not as if Putin et al. haven’t indicated that any advance of NATO and the EU into Ukraine would be considered to be a red line in the sand.

Last edited 9 months ago by Johann Strauss
Terence Fitch
Terence Fitch
9 months ago
Reply to  Johann Strauss

Or Russia could change its history from the Mongol Yoke and Ivan the Terrible onwards. Sadly never been a semblance of democracy. One word: Holodomor.

Andrew Fisher
Andrew Fisher
9 months ago
Reply to  Johann Strauss

How is it that there are so many apologists on here for this unprovoked aggression by Russia against a neighbouring state? (We should really just say ‘Putin’ as it seems his advisors had little to do with the decision).
Firstly, Ukraine isn’t in NATO, much to its current sorrow, and gave up its nuclear weapons having been given a security ‘ guarantee’ by the West and, er, oh yes, Russia! The latter also recognised Ukraine’s independence and, by the way, every single oblast in the country voted for independence. Putin also knows full well that NATO is a defensive alliance. The recent application by Ukraine to join the EU is a desperate pitch a week after the invasion, rather akin I suppose to Churchill’s offer to form a union with France in 1940.
It seems many of the same people who rail against the West trying to impose its values on, say, Afghanistan – I agree that was never going to work – blithely dismiss Ukraine’s desire to forge its own course.
The fact that people can’t see the difference between reasons and convenient excuses (Ukraine is also of course full of neo-Nazis…) shows them to be extremely naïve at best.
You could make exactly the same pseudo-justifications for Hitler’s expansionism in the 1930s, as indeed some did.

Last edited 9 months ago by Andrew Fisher
Iris C
Iris C
9 months ago
Reply to  Ian Moore

I think you must be well-off. For the majority of the population, money is “the be all and end all” in order to feed their family, keep them warm and pay their rent.
Many, no doubt will be thinking:: “Come back Jeremy Corbyn and an opposition party which looks after our interest.”

Malvin Marombedza
Malvin Marombedza
9 months ago
Reply to  Ian Moore

Not necessarily. What we should do is to establish our own red lines and have a clear sense of their red lines. For instance, suppose the Russians decided to deploy nuclear missiles in Mexico. The Americans wouldn’t have that; they would likely intervene forcefully to prevent that. But if Putin placed them in Belarus? A lot of noise and condemnation, a few token sanctions, and then silence.
This crisis unfolded because most Western governments never thought that Putin would resort to force when it comes to Ukraine. They might have seen things from a liberal democratic view whilst completely ignoring the geopolitics behind it. Putin doesn’t see it that way. In this case, we can’t coerce him to do so through force because the Russians are powerful enough to inflict extreme damage on the West. We are not dealing with Saddam Hussein and his Iraq.
That human life is valuable is true. We just put different prices on it. Your life, or the life of someone close to you is priceless. You might even be willing to give yours to preserve it. I suppose that’s the case for most people. But how many people, despite all their rhetoric, are willing to risk their lives plus the kitchen sink for people they don’t know who are thousands of miles away? Or even a certain part of their lifestyle? They wouldn’t kill a stranger. They would be probably horrified by that stranger’s death, sure, but they wouldn’t risk everything for them as they would for someone who is very close to them.

Last edited 9 months ago by Malvin Marombedza
Warren T
Warren T
9 months ago
Reply to  Ian Moore

Unfortunately, the old refrain is true, “money makes the world go ‘round”.
Greed was the basis for the very first sin of mankind in Genesis, as Eve wanted more than what she already had, which was everything she needed to live harmoniously. And the second sin, when Cain ki**ed his brother Abel for pleasing God by sacrificing his best animals. Cain only offered “some fruits” from his field and displeased God.

Last edited 9 months ago by Warren T
Graham Stull
Graham Stull
9 months ago

This is a useful perspective. Thanks Philip.

J Bryant
J Bryant
9 months ago

Interesting article especially when read alongside Lee Jones’s article about the effectiveness (or not) of sanctions.

Dominic A
Dominic A
9 months ago

What is they say about accountants…? Ah yes, they know the price of everything and the value of nothing. I suppose this may apply to economists too (apologies to O. Wilde)

Sean Penley
Sean Penley
9 months ago

At least we know Putin considers it a big deal. He has been making threats for years about retaliation if Russia is kicked out of Swift. He may well find another alternative, but he wouldn’t have wasted his bluster if he thought it an easy transition.

Malvin Marombedza
Malvin Marombedza
9 months ago

Things are often not as simple as we think they are.

Andrew Fisher
Andrew Fisher
9 months ago

Another careful justification of ‘don’t do anything’! Utterly shameful. Sanctions, nyet, stopping football and sporting contacts, nyet, cultural contacts, nyet. It might be inconvenient to us. That Churchill was such an naïve idiot! Russia will of course form an alliance with the West if we are nice to it and give it whatever territory and vetoes on countries within its empire that it wants. Not!
The reality is that Russia will form closer ties with China, that die has been well and truly cast. For one thing autocrats don’t want at the pesky people to be able to get rid of them. However, the Russians had better hope that China doesn’t cash in for the 18th century seizures of Chinese territory in the Russian Far East.

Jon Hawksley
Jon Hawksley
9 months ago

Banks that cannot clear transactions though SWIFT will find a correspondent bank who can. It is not as convenient, payments take longer and some trust is required but it is considerably easier than persuading customers to denominate transactions in renminbi.

Last edited 9 months ago by Jon Hawksley
Andrew Fisher
Andrew Fisher
9 months ago

So, yet another article arguing, that no, let us not do anything at all that may slightly inconvenience us. The idea that the west is pushing Russia into the hands of China; there has been a decade’s worth of aggression from Russia. the EU opening an office in Kiev doesn’t really compare. Russia is already cosying up to China; the two authoritarian powers know they have a common enemy in democracy, if for no other reason than the leaders, especially Putin, would fear being put on trial if he fell from power.