Screw SWIFT; Russia's Money Transfer of Its Own

Its counterpart should be "Russia International Financial Transfers" or RIFT (get it?)

Those who've sent money through banks internationally are undoubtedly familiar with the Society for Worldwide International Financial Transfers or SWIFT. Quibble if you may with the bank charges and the process being less than instantaneous--money takes a day or two to arrive--but there is no real alternative since it's the standard being used by nearly all banks worldwide. Or, make that was the only standard being used by nearly all banks worldwide. Because of its rogue status in the West, there have been proposals to not only freeze Russian state-affiliated banks out of Western credit markets but to ban all Russian banks from using SWIFT. You know, to "Iran-iate" [the act of isolating a country, Iran-style] Russia:

Now some are urging the EU to wield what may be the most powerful sanctions weapon at its disposal, the same one it used against Iran in 2012: locking Russia out of the Swift interbank payments system.

The Belgium-based Society for Worldwide Interbank Financial Telecommunication system, known as Swift, is a secure messaging system used by more than 10,500 banks for international money transfers. Without it, Russian banks and their customers couldn’t readily send or receive money across the country’s borders, which would wreak havoc with trade, investment, and millions of routine financial transactions. Swift has to comply with EU decisions because the organization is incorporated under Belgian law.

When sanctions imposed in 2012 blocked Iran’s banks from using Swift, the economic impact was “profound,” says Mark Dubowitz of the Washington-based Foundation for Defense of Democracies, which has lobbied the U.S. government to take a hard line against Iran. “We know it has been painful,” Dubowitz says, because in talks with western countries, “Iranian negotiators have systematically demanded that this is one of the sanctions that should be relieved first.”

Since these mooted sanctions have not really gone away, Russia has been mulling the creation of its own international fund transfer system. The latest from the Russian government-friendly RT is that this system is going to be in place by the middle of next year:

Russia intends to have its own international inter-bank system up and running by May 2015. The Central of Russia says it needs to speed up preparations for its version of SWIFT in case of possible ”challenges” from the West.

"Given the challenges, Bank of Russia is creating its own system for transmitting financial messaging... It’s time to hurry up, so in the next few months we will have certain work done. The entire project for transmitting financial messages will be completed in May 2015," said Ramilya Kanafina, deputy head of the national payment system department at the Central Bank of Russia (CBR).

Calls not to use the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system in Russian banks began to grow as relations between Russia and the West deteriorated over sanctions. So far, SWIFT says despite pressure from some Western countries to join the anti-Russian sanctions, it has no intention of doing so. 

My eyebrows are furrowed here: sure a propriety money transfer system among Russia financial services providers could function in the face of Western sanctions, but how does that solve the problems of obtaining financing in foreign exchange or transferring money to other banks which are not Russian? It sounds like a partial workaround to me--especially if no one else signs up to use the Russian system aside from a few sympathetic states. 

Make no mistake: barring Russia from using SWIFT would be catastrophic for its banks and firms already reeling from being frozen out of Western capital markets.