Putin’s choice?

It is reluctantly that the West is setting out measures to punish Lukashenko’s Belarus for his recent misdeeds. The current regime in Minsk, being in survival mode, obviously hadn’t foreseen such an international backlash, since it has been wholly preoccupied, obsessed even, with trying to neutralise its adversaries. It is also true that Lukashenko is now totally indifferent to the reputation and image that he projects, convinced that he is under Russia’s protection – and that he will remain so.

However, the world of business and industry in Russia looks upon Lukashenko and his henchmen with great distrust, or perhaps disdain, and is blocking its public powers from expending any more resources on Belarus. This therefore determines the limits to the action and support that Putin can bring to the Belarussian dictator: limits that have been clearly set out by the Russian elites who disapprove of Russia getting heavily involved, who refuse to favour the power currently held in Belarus – and they make it known to Putin. This is because there is another, more serious threat that weighs on the Russian economy and haunts its business arena, that being the country’s exclusion from SWIFT, the international payment system.

To this end, the resolution adopted on 29^th April this year by the European Parliament banning Russia from SWIFT if its troops were to invade Ukraine is just the most recent twist in the very serious plot that the West has been spearheading since 2014. This is the nuclear option that would devastate Russia’s economy – let us not forget Iran’s exports that collapsed by 50% when this country too had been excluded from SWIFT in 2012. Russia’s economy demonstrates a considerable dependence on SWIFT that allows it to earn foreign currency through its sales of hydrocarbons. Exclusion from SWIFT would cost around 10 base points to Russia’s GDP, would spell the end for all its international transactions, and would trigger a monetary crisis in the country with enormous levels of capital flight.

By 2014, Russia’s economy had had a taster of these consequences after a number of the country’s banks were blacklisted by the US government, causing Visa and MasterCard to immediately suspend all services from and blocking all users registered with these establishments. Since then, the Russian government has in fact put in place a national credit card system called ‘Mir’, meaning ‘The World’. But this saw limited success because the means of payment is accepted abroad only in Armenia, Abkhazia, South Ossetia, certain regions of Georgia and parts of Turkey… What’s more, Russia did indeed try to replace the SWIFT network in 2014 with a national equivalent called the ‘System for Transfer of Financial Messages’ (SPFS) that now has about 450 financial institutions as members, but they are all Russian because foreign banks operating in Russia, such as Deutsche Bank, have still not signed up.

An alliance with China’s international payment system, ‘Chinese Cross-Border Interbank Payment System’ (CIPS), is sometimes suggested by some in Russia as a means of circumventing SWIFT, especially given that the renminbi’s chances of one day competing with the dollar are much greater than those of the rouble. Not any time soon though, because China’s currency only makes up 2% of the world’s transactions while the dollar has the lion’s share of 40%. The renminbi is also greatly outweighed by the euro, the yen and the pound sterling, and China’s CIPS system in turn only stacks up to about 0.3% of the volume of SWIFT transactions.

In a gloomy time for the Russian economy that currently has no escape route or anything worthy of the name, Putin – whose top priority is Ukraine – will soon turn his back on Lukashenko.