After President Vladimir Putin started a military operation on Ukraine on Feb 24, U.S. President Joe Biden imposed economical and diplomatic sanctions on Russia. As a result, some companies are exposed to complying with the boycotts and must discontinue operations in Russia, including the money transfer service provider, SWIFT.
“Everyone who now doubts whether Russia should be banned from Swift has to understand that the blood of innocent Ukrainian men, women, and children will be on their hands too. BAN RUSSIA FROM SWIFT,” tweeted Dmytro Kuleba, Ukraine’s minister of foreign affairs.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a Belgium-based cross-border money transaction service founded in 1973 and is connecting more than 11,000 banks and 200 countries.
Although Russia has an alternative to SWIFT, called the SPFS, which has been in development since 2014, it still can’t operate as effectively as the Belgian firm. This caused slower and more expensive transactions, even with some of Russia’s friendly countries, like China.
“On SWIFT, the allies committed to remove “selected” Russian banks from SWIFT. This is a good move. It means that the allies will couple blocking sanctions with targeted SWIFT bans,” said Eddie Fishman, an economy expert and member of Atlantic Council’s Eurasia Center. “Only banks that are sanctioned will be blocked from SWIFT. It will not be a blanket SWIFT ban.”
Crypto as the best alternative
The U.S. is still concerned with Russia’s pivot to cryptocurrencies. Although some major centralized crypto exchanges — including Coinbase, Gemini, and Binance — have told Bloomberg to comply with the international sanctions, Russians can still use decentralized exchanges and non-custodial wallets.
Since the U.S. dollar is the reserve currency of the world, these sanctions will have a strong effect on Russia’s international trade. Hence, the only path to evade sanctions is using crypto without the U.S. dollar.
Russia, in addition, has been developing its own central bank digital currency (CBDC), called digital ruble, that will operate as a cryptocurrency but in a more centralized manner. The project was announced in Oct 2020.
The digital ruble pilot is expected to launch soon after its prototype was completed in Dec last year. According to the Russian media, Tass, the pilot for the Russian digital currency will launch with 12 banks participating in early 2022. The CBDC project will allow Russia to be less dependent on the U.S. dollar, or even evade sanctions.