St Petersburg International Economic Forum

Russia's central bank governor touts Moscow alternative to SWIFT transfer system as protection from US sanctions

Key Points
  • Elvira Nabiullina said Russia has developed its own system for financial transfers.
  • But analysts have questioned the viability of Moscow's transfer system.
Russian economy adapted pretty quickly to latest sanctions: Central bank

Russia has developed its own system for financial transfers that would protect it from a potential shutout of the SWIFT global transfer system in the event of harsher U.S. sanctions, its central bank governor said Wednesday at the St. Petersburg International Economic Forum.

But analysts have questioned the viability of Moscow's transfer system.

"There are risks in using the global financial networks, the global financial system, of which Russia is a part," Russian central bank chief Elvira Nabiullina told CNBC's Geoff Cutmore during the forum. "Therefore, since back in 2014, we have been developing our own systems, including a payments system. Inside Russia we have created a system for transferring financial data, which is similar to SWIFT."

SWIFT, which stands for Society for Worldwide Interbank Financial Telecommunication, is a global financial network that enables high-value cross-border transfers among its members.

Most interbank messages are transferred using SWIFT, which links more than 11,000 financial institutions in over 200 countries and territories. Based in Belgium, the cooperative has in rare instances disconnected countries' banks from its network as a tool of financial sanctions — notably on Iran in 2012, which was consequently denied access to billions of dollars in revenue.

The Donald Trump administration's increasingly muscular foreign policy, which has rolled out new financial sanctions against Iran as well as Russia, is raising questions of risk for Moscow's banks should Washington step up its financial penalties in the wake of rising tensions between the two countries.

But Russia's Nabiullina was confident in her country's risk-mitigation measures, saying that its own payments system "reduces the risks for Russian players, for Russian businesses and for Russian banks."

"This system is already operational and it allows, inside Russia, to transfer financial data," she said, calling it an "absolutely similar, competing system" that allows — at least inside Russia — "to nullify such risks."

Russian Central Bank Governor Elvira Nabiullina addresses an extended meeting of the Russian Finance Ministry's Board.
Dmitry Astakhov | TASS | Getty Images

Financial analysts have their doubts. Timothy Ash, senior emerging markets sovereign strategist at Bluebay Asset Management, described it as "not very credible." It might work for the domestic market and some non-Western markets, he said, but was "not realistic for dealing with Western partners."

Maximilian Hess, senior political risk analyst at London-based AKE Group, echoed similar skepticism. "Russia has indeed been working on its SWIFT alternative, but its potential for mitigating the risks posed by a potential SWIFT ban is limited," he said. That it would nullify risks, he added, "is a political statement aimed at those in the government attuned to these developments, not a serious statement that there would not be major concerns were such a ban to come to pass."

However, Hess did not see a SWIFT ban as imminently likely, although it will continue to be threatened.

The issue, he explained, is that other countries are very unlikely to use Russia's system, particularly as it would be fairly straightforward for the U.S. government to threaten sanctions against this too.

"Of course, it would be far more effective to have an international system on which everyone could rely, which would be distinguished by predictability and an inviolability to the rules and access," Nebiullina said, perhaps in a subtle jab at Washington. Russia has been under older U.S. sanctions since its 2014 annexation of Ukraine's Crimean peninsula, which played a major role in its subsequent recession.

"Russia has encountered this and so, proceeding from this, we are taking measures that reduce the risks for the Russian economy and the Russian financial system," she said.

The U.S. Treasury in April announced fresh sanctions on seven Russian oligarchs and 12 companies they control, plus 17 top Russian officials in response to what it called "destabilizing activities" — these include cyber attacks, Moscow's support for the Syrian regime of Bashar Assad, human rights violations and meddling in the 2016 U.S. election. Relations between the two countries are said to be at their lowest level since the Cold War.