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The financial institutions in Russia have not been fairing well over the past week due to the economic sanctions that have been imposed on the country by the US and European countries. One of the major blows to the Russian economy has been the removal of Russian banks from the SWIFT system.
However, the Bank of Russia is now working on an alternative for the SWIFT system, enabling Russian banks to recover from the effects of the exclusion. An alternative to the SWIFT system will also allow Russian banks to access the international payments network.
Russia is working on an alternative for SWIFT
According to a report by Reuters, the governor of the Bank of Russia, Elvira Nabiullina, has said that its financial system would step in to be an alternative for the SWIFT system. This would be an internal replacement to shield banks from their exclusion from the global market.
The decision to remove Russian banks from the SWIFT system was agreed upon by the United States, the European Union and other allied countries. SWIFT, known in full as the Society for Worldwide Interbank Financial Telecommunications, is a messaging system that works across different banks to support their international fund transfers.
The removal of Russian banks from the SWIFT system has dealt a major blow to the Russian financial sector. The Russian ruble has been losing a lot of value, and it is now sitting at an all-time low against the US dollar. So far, the ruble has lost around 30% of its value.
Nabiullina said that Russia’s payments infrastructure would remain functional despite the ban from SWIFT. The replacement for the SWIFT system will be the System for Transfer of Financial Messages (SPFS), which is an internal payments system. The official stated that the replacement could support Russia’s banking clients, enabling Russia to fulfil its clients’ obligations. The SBFS system has been under development since 2014.
However, the SBFS system is not as effective as the SWIFT system. Currently, there are only 23 foreign banks connected to the SBFS system. This is a small number compared to the 11,000 banks that are SWIFT members. Therefore, the Bank of Russia still has a major challenge in making the SBFS system work effectively and have the kind of reach that the SWIFT system has.
Bank of Russia on taming inflation levels
Besides seeking a replacement for SWIFT, the Bank of Russia has been working on ways to tame the rising level of inflation. Recently, it announced a rise in interest rates. The interest rate has been increased to 20% to motivate increased savings for the Russian ruble.
The bank has also urged the institutions operating in the country to recall their foreign currency reserves if they are totally locked out of the global financial market. Recently, the president of the European Commission called upon the development of a comprehensive regulatory framework for digital assets to prevent Russia from using cryptocurrencies to evade sanctions.
Local media publications have also stated that the Russian government could be working on creating a “one world” digital currency. This currency could be used to boost global trade.
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