China Condemns Putin While Securing Its Own Interests with the EU

Western Allies Including the US Block Russia from Using SWIFT Cards
Europe Faces Major Damage as International Payment Network, Known as Financial Nuclear Weapon, Expels Russia

[Asia Economy Beijing=Special Correspondent Jo Young-shin] Chinese media reported that the Western camp, including the United States, condemns Russian President Vladimir Putin while protecting their own economic interests. They pointed out the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment network, which was excluded from the recent sanctions.

[Image source=AP Yonhap News]

Chinese economic media Caixin analyzed the impact of SWIFT sanctions on March 25 while reporting on the effects of US and European financial sanctions on Russia.

Caixin explained that SWIFT is a financial payment system used by over 11,000 financial companies and institutions in more than 200 countries, processing an average of 42 million financial messages daily as an international payment network. It added that SWIFT sanctions are generally interpreted as a nuclear weapon in the financial sector.

Caixin reported that Alexei Kudrin, former Russian Finance Minister, predicted in September 2014 that if Russia were subjected to SWIFT sanctions, its gross domestic product (GDP) would decrease by 5% within a year. At that time, Russia faced sanctions from the international community due to the annexation of Crimea.

Caixin elaborated that SWIFT sanctions mean the blocking of all financial systems of a specific country, citing Iran and North Korea as examples of countries under such sanctions. In Iran’s case, SWIFT sanctions blocked 50% of oil export payments and 30% of total foreign trade.

However, SWIFT, headquartered in Brussels, Belgium, follows European Union (EU) regulations. It explained that when US President Joe Biden announced the second round of sanctions on Russia, including controls on exports of advanced products, SWIFT sanctions were excluded because European countries did not want them.

Caixin reported that foreign ministers of Baltic Sea coastal countries insisted on expelling Russia from SWIFT, but other EU member states opposed it. Caixin added that most EU member countries could suffer enormous damage if Russia were expelled from SWIFT.

Caixin stated that since 2014, Russia has built its own payment system, the Russian Financial Messaging System (SPFS), amid concerns about possible exclusion from SWIFT. Caixin explained that currently about 400 financial companies and institutions use SPFS, and as of the end of May last year, 20% of domestic transfers in Russia were conducted through SPFS.

Some in China predict that if SWIFT sanctions are imposed on Russia, yuan transactions between China and Russia could become more active. From China’s perspective, which dreams of internationalizing the yuan, the Ukraine crisis could be an opportunity to increase yuan transactions. According to data released by the Chinese Ministry of Commerce, the yuan’s share in international payments reached a record high of 3.2% in January. The Chinese Ministry of Commerce explained that the Chinese yuan is the fourth most traded currency in the world after the US dollar (39.93%), euro (36.56%), and British pound (6.30%).

Sun Caihua, a researcher at the Chinese Academy of Social Sciences, said, "SWIFT sanctions block cross-border capital flows and have a significant impact on international trade," but added, "Since there are alternative cards such as SPFS, cryptocurrencies, and the China International Payment System (CIPS), the EU will not be able to use the SWIFT sanction card."