UK Pushing To Kick Russia Out Of SWIFT, But Germany Says No

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by Tyler Durden
Thursday, Feb 24, 2022 - 04:10 PM

Yesterday we reported that in an unexpected twist, Russia's Ministry Of Finance had submitted a bitcoin bill proposal, surprising because until now Russia's central bank has called for a complete ban on the trading and mining of bitcoin, setting up a conflict with the Ministry of Finance, which has been far more favorably positioned vis-a-vis cryptos.

One reason for the favorable view by the Russian Ministry is that it has long been suggested that the west could expel Russia from SWIFT, effectively kicking Russia out of the entire dollar-payment system, and leaving Russia with few payment alternatives, one of which would be of course bitcoin.

Well, adding fuel to the fire, moments ago the FT reported that UK prime minister Boris Johnson was pushing “very hard” for Russia to be ejected from the Swift international payments system, "a move that would deliver a heavy blow to the country’s banks and its ability to trade beyond its borders."

“The PM is very keen on this — he’s pushing it very hard,” said one British official, referring to his efforts to eject Russia from Swift. Johnson also raised the idea at a meeting with City of London executives on Wednesday.

A similar appeal to kick Russia out of SWIFT was echoed moments ago by Ukraine foreign minister Dmytro Kuleba:

However, in an even more surprising twist, the FT also reports that Olaf Scholz, German chancellor, "warned Johnson on Thursday that his country would not support such a dramatic move and neither would the EU, according to officials close to sanctions negotiations." A German official declined to comment, saying only that “all options are still on the table”.

Johnson - as well as US president Joe Biden who has yet to address the nation - has faced criticism in the UK for deploying what critics described as “peashooter” sanctions in response to the first stage of Russian aggression in Ukraine; he is now trying to push western colleagues to deploy very tough reprisals.

Other such as Milos Zeman, Czech president, have backed BoJo, saying on Thursday that he wanted to impose harder EU sanctions on Russia, including ejecting its banks from Swift, arguing that it was important to isolate Vladimir Putin, Russia’s president.

Conceding that BoJo's appeal is merely theatrical, the FT notes that even Downing Street has conceded that any move regarding Swift could only be done with international agreement, a position shared by the Biden administration. “We have to do it together,” the British official said.

Echoing the German position, the US has so far suggested that it was too early to consider the move, while saying that no option was off the table. Daleep Singh, a deputy White House national security adviser, earlier this week said there were “other severe measures we can take that our allies and partners are ready to take in lockstep with us, and that don’t have the same spillover effects”.

Removing Russia from Swift would be a heavy blow to its biggest banks and would hamper the country’s ability to trade outside its borders. It would also stymie Russia’s ability to recoup international profits from its oil and gas exports, which account for more than 40 per cent of its revenue.

Swift, a Belgian co-operative, is used by more than 11,000 banks and financial institutions worldwide and handles 42mn messages a day, facilitating trillions of dollars worth of transactions. Russia accounted for 1.5 per cent of transactions in 2020.

Being cut off from Swift would not prevent Russian banks from carrying out cross-border transactions, but doing so would become more costly and arduous. Foreign dealings would rely on the use of less efficient communication tools, such as email and telex.

Meanwhile, Europe remains divided on the topic of just how to respond to Russia: "the EU is locked in discussions over how to approach the issue. While Baltic countries and Poland are among those who are advocating a hawkish line on the topic, other member states are more wary."

In other words, not even a full-blown invasion of Ukraine is sufficient for the west to take the nuclear option of disconnecting Russia for the simple reason that Europe remains painfully reliant and interlinked with European energy supply, supply which would be untouchable should Russia no longer be in SWIFT.

EU leaders will convene on Thursday evening in Brussels to discuss the bloc’s sanctions package. It is unlikely that a SWIFT decision will be taken, which leaves us with the following humorous take from Jim Bianco: