Russia And Iran Preparing For SWIFT Banking Network Cutoff

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Iran, which is facing increasing US sanctions and is expecting its banks to be cut off from the global SWIFT banking network next week, is calling on Russia to create a substitute for the SWIFT international banking-payment system for the member-states of the Shanghai Cooperation Organization. Tehran’s initiative comes amid fears that the Biden administration would seek to make anti-Russian sanctions more effective and after similar requests were made at last months Shanghai Cooperation Organisation summit.

There has been progress. Last year, Iran and Russia connected their national systems of transferring financial messages (Russia’s SPFS and Iran’s SEPAM) without using SWIFT. Russian officials are also talking about creating their own systems of settlements. So far, Russia’s SPFS has less than 400 participants compared with SWIFT, which involves nearly 11,000 major organizations in more than 200 countries.

Changes also need to be made to upgrade the SPFS system which critics say was created hastily and its functions limited. It can process just 50 types of messages, half as much as SWIFT. Russia’s SPFS has also failed to offer a flexible system of tariffs.

The major challenge for these alternatives is to become popular, said Sergei Khestanov, a senior lecturer at the Russian Presidential Academy of National Economy and Public Administration. “SWIFT’s strength is that it is widespread and not about some special features,” he noted. “If a SWIFT substitute can attract foreign clients, then it can be a real rival. It’s hard to become an alternative quickly because of the global nature of the task. However, as far as countries and trade alliances go the goal can be achieved.” SPFS has a chance for a breakthrough amid the risk of Russia’s cutoff from the international system. “Iran was cut off from it and that’s why it is lobbying for switching to SPFS, but Russia still has an alternative and basically, there are no objective reasons to dump SWIFT at its own initiative.”

China is also interested in creating a common use alternative to SWIFT as it too is wary of US sanctions and Washington’s use of SWIFT as a trade weapon, and cutting countries off the global banking network, despite the service actually being based in Belgium. It has its own BSN network and has also been looking at ways in which it can communicate with Russia’s SPFS. With China and Russia being the two major trade partners of Iran, and energy supplies being a crucial issue for all three countries, it can only be a matter of time before a combination system is available. If that were to be extended and made available to Shanghai Cooperation Organisation members and related nations, it would provide a significant alternative. China, Russia and Iran are all part way down this route, despite problems with the SPFS as these can be ironed out over time. China is proceeding with its digital yuan, Russia with the digital ruble, while Iran launched the Covenant cybercurrency last year.

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