{"id":1851,"date":"2022-03-08T01:50:53","date_gmt":"2022-03-08T01:50:53","guid":{"rendered":"http:\/\/httpsht\/?p=1851"},"modified":"2022-03-08T08:58:39","modified_gmt":"2022-03-08T08:58:39","slug":"disconnection-of-russian-banks-from-the-swift-and-impact-on-armenia","status":"publish","type":"post","link":"https:\/\/profinance.am\/hy\/archives\/1851","title":{"rendered":"Disconnection of Russian banks from the SWIFT and impact on Armenia"},"content":{"rendered":"
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<\/p>\n

The political relations of Russia with Ukraine dramatically turned their directory in 2000s and worsened in 2014 with the separation of Crimea from Ukraine. In February 2022 after months of posturing and mobilization along the eastern borders of the Donetsk and Luhansk oblasts, the Russian government formally recognized the independence of the Donetsk People\u2019s Republic (DPR) and Luhansk People\u2019s Republic (LPR), which had declared independence from Ukraine in 2014, and authorized a military intervention on 24th<\/sup> of February. \u00a0<\/p>\n

The American and European response to this crisis has been equally as momentous. Between the remilitarization of German government spending, support for NATO membership among traditionally neutral countries, a new formal applications for EU membership by Ukraine and Georgia has been organised.<\/p>\n

However, what distinguishes this recent round of sanctions is the disconnection of several Russian financial institutions from a network known as \u201cSWIFT\u201d. This article will examine what SWIFT is and how blocking Russia from accessing it could impact the Armenian economy. This article will also explore SWIFT\u2019s sister networks, such as CIPS and SPFS, and look to Iran as an example of what trade with a post-SWIFT state may look like.<\/p>\n

<\/p><\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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SWIFT what is it?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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SWIFT refers to an international network developed in the early 1970s that is used to facilitate the movement of money between banks and financial institutions.\u00a0SWIFT is a protocol, that is used to establish mutual communication between financial institutions and provide destinations for the delivery of money in wire transfers, bank payments and everyday transactions.\u00a0Western Europe is particularly overrepresented among the network\u2019s board members, it\u2019s worth noting that SWIFT is used for virtually all international financial transactions throughout the world, even if both banks involved are located outside of the G-10 or the jurisdiction of the European Central Bank.<\/p>\n

On February 24, 2022, the United States and European Union announced that a collection of Russian banks and corporate entities would be\u00a0disconnected from the SWIFT network\u00a0in response to the ongoing invasion of Ukraine. This decision and its associated sanctions package have had a\u00a0severe impact\u00a0on the Russian economy.\u00a0At the time of writing, the exchange rate is 3.74 AMD to 1 RUB (or 130 RUB per 1 USD), reflecting a nearly 37.6% decrease in value over the span of two weeks.<\/p>\n

\u00a0As part of this strategy, sanctions are levied against specific individuals and institutions, rather than the entirety of Russia. The purpose of this model of economic countermeasure is to focus on the impact of sanctions on a select few decision makers in the Russian government.<\/p>\n

Services like\u00a0ApplePay\u00a0have stopped working in Russia, and many Russians are\u00a0unable to use online marketplaces, while the\u00a0price of food\u00a0and other necessities skyrockets across the country.\u00a0<\/p><\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Impact on Armenia<\/o:p><\/span><\/b><\/p>\n\n<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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\u00a0Armenia benefits from a strong Russian economy. Years of high economic growth in Russia are reflected in higher remittance rates (Armenian workers sending money to their families back home), a greater volume in trade, and higher amounts of Russian Foreign Direct Investment (FDI) in the Armenian economy. In years where the Russian economy has underperformed or contracted, the Armenian economy slows down as well. Examples of this include 2014 and 2015, when the contraction of the Russian economy following the implementation of sanctions by the European Union and United States was reflected in a\u00a0sluggish Armenian economy.<\/p>\n

Russia remains Armenia\u2019s largest trading partner and is heavily represented in virtually every section of the Armenian economy. Additionally, despite the disparities in size between both countries\u2019 economies, Armenia\u2019s trade balance with Russia is relatively equitable. When we consider that Armenia\u2019s trade with its second-largest trading partner, the European Union, is based almost entirely on the\u00a0extraction of rare metals by a small collection of corporate entities, we can see that a shock to the Russian economy could impact nearly all elements of Armenian commercial activity.<\/p>\n

With the improvement of sanctions against Russia a huge emigration stream is observed from Russia to Armenia. The visitors are from different sectors and among them, the IT sector workers are dominant. \u00a0This sector is highly connected to international partners and hence international transfers, which means Armenia is seen as an oasis to bypass from SWIFT sanctions. On the other hand, Armenia has developed a good infrastructure and legal, taxation conditions for this sector to thrive and be competitive in the international markets.<\/p>\n

Over the span of 8 years of sanctions imposed on Russia and the threat to disconnect Russia from the SWIFT, the Eurasian Union has developed their own means of money transfer to replace SWIFT in case of disconnection from SWIFT. A total of 23 foreign banks have joined the SPSF network.\u00a0Members\u00a0of the network include banks in Germany, Switzerland and the five members of the EAEU, along with potential linkage with CIPS and expansion into\u00a0Turkey and Iran.\u00a0<\/p>\n

We shall note however, that not all the Russian banks have been disconnected from SWIFT. Neither Gazprom Bank nor its Armenian subsidiary are mentioned in the Treasury Department\u2019s statement, although Gazprom as a whole is mentioned.\u00a0<\/p>\n

Another option to replace SWIFT is \u201cCross-Border Interbank Payment System\u201d (CIPS), is used in mainland China as a means of processing bank transactions, with which Russia cooperates after the sanctions imposed in 2014.<\/p><\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Ut non sem at nibh convallis ullamcorper.<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Sanctions and Iran<\/span><\/b>
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When analysing what trade with a disconnected and heavily sanctioned Russia may look like, Armenia only needs to look toward Iran. While Tehran has been under heavy sanctions for decades, minor commercial activity and commerce between Armenia and Iran is still possible. This is because, while the Iranian border is one of Armenia\u2019s two open international crossings, Yerevan still complies with the sanctions regime levied by the United States and international community.\u00a0<\/p>\n

Tehran was disconnected from SWIFT\u00a0in 2012\u00a0in response to the Iranian Nuclear Program and only partially reintegrated to the network\u00a0in 2016. With these factors in mind, there is a noticeable sense of caution in how the Armenian government facilitates major transactions with the Iranian government. Natural gas purchased from Iran via the Armenia-Iran Gas Pipeline is paid for by Yerevan through the\u00a0transfer of electricity\u00a0through both countries\u2019\u00a0shared power grid. For Armenia and Iran, this exchange of energy is a viable means of handling such a transaction, as it neither violates elements of sanctions law related to money transfers, nor is dependent on networks like SWIFT. Should Armenia find itself unable to purchase Russian gas through traditional financial means due to sanctions levied against Gazprom, perhaps this commodity-based trade could be used with pre-existing pipeline infrastructure.<\/p>\n

\u00a0<\/p>\n

\u00a0<\/strong>Ride the storm<\/strong><\/p>\n

It is crucial that Yerevan works to prevent the potential extension of SWIFT limitations and sanctions to Armenia. This means balancing the continued movement of funds between Armenia and Russia while ensuring that SPSF and SWIFT remain distinct networks that are insulated from one another. It is of the utmost importance that Armenia does not position itself as a willing partner in sanctions evasion. This is a role that has been taken by\u00a0Belarus in the past\u00a0and that some believe\u00a0Azerbaijan may try to emulate\u00a0in the near future.\u00a0<\/p><\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>","protected":false},"excerpt":{"rendered":"

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