The chief executive officer of Russia's second-largest bank emphasized the necessity of shifting away from Western payment systems like SWIFT, stating that it is crucial for Russia and its trading partners.
Addressing the Data Fusion 2024 conference on Thursday, April 18, Andrey Kostin, CEO of Russia's third-largest bank VTB, advocated for the advancement of digital financial settlements within Russia and its allied nations, and a shift away from Western-controlled transaction settlement platforms like SWIFT. He argued that such a move would diminish the dominance of the dollar and enable full sovereignty in the financial sector.
Kostin asserted, "We need to eliminate SWIFT from our settlements entirely and engage our partners in this endeavor."
He highlighted significant efforts undertaken by the Central Bank of the Russian Federation to achieve this objective. VTB is presently involved in a pilot project aimed at integrating a digital version of the country's currency, the digital ruble, into more widespread use, including in cross-border transactions.
Acknowledging the central bank's endeavors to strengthen the ruble over the past decade, Kostin praised the establishment of an effective system for reducing dependency on imported components in the financial sector.
"While many in the manufacturing sector relied on foreign components, the Bank of Russia steadfastly pursued the creation of an independent system," he remarked, citing examples such as the Mir card, the Faster Payments System SBP and the country's stock exchange infrastructure.
Kostin recently disclosed that the latest round of sanctions led by the United States had compelled banks in several "friendly" nations – including Armenia, Kyrgyzstan and Kazakhstan – to cease transactions with Russia and discontinue acceptance of Russia's Mir payment cards. (Related: U.S., other countries impose sanctions on over 500 Russian economic targets to mark the second anniversary of war in Ukraine.)
Russia developing closer ties with China to prop up economy
In the face of international sanctions two years ago, Russia pushed for the escalating use of the renminbi and closer ties with China's international payment system.
Since the 2014 annexation of Crimea and the recent invasion of Ukraine, Russia has faced severe sanctions from the U.S., the European Union and other Western nations.
The round of sanctions includes export controls, direct penalties on military and political entities, and financial restrictions targeting major Russian banks like Sberbank and VTB Bank.
The scale of these sanctions exceeds previous expectations, signaling a challenging road ahead for Russia. One of these early sanctions included a move by the EU to ban seven major Russian banks – including VTB – from the SWIFT network.
At the time, all these Russian banks relied heavily on SWIFT for its role as a crucial messaging system for international payments. Exclusion from it has severely hampered Russia's ability to conduct cross-border transactions efficiently.
Despite these challenges, Russia has been proactive in pursuing alternatives to SWIFT. These alternatives include the establishment of the SPFS, or the System for Transfer of Financial Messages, a regional alternative to SWIFT.
However, SPFS alone falls short of providing a comprehensive solution. Recognizing this limitation, Russia has explored integration with China's Cross-Border Interbank Payment System (CIPS), which processed trillions of dollars in transactions in 2021.
While promising, CIPS still relies on SWIFT for international transactions, and the renminbi's limited international usage poses additional hurdles.
Although Sino-Russian trade has surged in recent years, with China becoming Russia's largest trade partner, the renminbi's role remains relatively modest. While renminbi-based trade has grown, it still represents a fraction of total trade, and the renminbi's convertibility challenges persist.
Russia's reserves in renminbi and bilateral swap agreements with China offer some cushion, but their capacity to support international trade is limited.
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