The conflict between Russia and Ukraine puts Putin in a difficult position as the SWIFT banking system may be cut off from Russia. The possible cutting off Russia from the international payment system SWIFT will return to the West like a boomerang. In addition, it would weaken the dollar’s role in the world economy, as SWIFT stands to a large extent and falls with the US currency. These are the key reasons why the West has not yet cut Russia off.

Russia and Ukraine conflict outcome for Putin

What exactly does it mean that cutting would return like a boomerang? The West would have virtually no way to pay Russia for oil supplies, and gas in particular. About 35 percent of the gas consumed by Europe comes from Russia. Russia would hurt the cut even more, as it supplies over 70 percent of its gas to Europe. With the amount from the SWIFT system, these deals would end essentially.

The failure of more than a third of gas supplies also means a significant increase in the price of electricity, as a substantial part of it in Europe is produced from gas.

The first step Europe would have to take in such a situation is to put the Green Deal on the ice and its ambitious plans to achieve carbon neutrality by 2050. It would have to be willing to learn to live in occasional gas or electricity supply conditions to companies and households. She would have to be willing to accept their massive increase, far beyond anything we have experienced in recent months. It would have to be prepared for the next round of inflation, “war inflation.” 

It would have to be prepared to curb this inflation by significantly raising interest rates, which could put over-indebted countries such as Italy and France on the verge of bankruptcy. She would have to be willing to buy much more liquefied gas in the US or Qatar. And also to put back into operation its decommissioned nuclear, coal, and even fuel oil power plants.

Even if she manages it, there is another major problem. The dollar would suffer. SWIFT is based mainly on the dollar. Most SWIFT system transactions take place in it. It is a tremendous but illustrative exaggeration to say that SWIFT is a “Facebook for banks and other financial institutions.” Instead of likes, they mainly send dollars in it internationally. The share of dollar transactions exceeds 40 percent, of which there is almost 37 percent in euros. However, there is less than three percent left for the Chinese currency.

Of course, China would like its currency to be much more strongly represented than Russia. But it’s not that easy—the same thing that made Facebook the number one global social network: the network effect. Two are needed for a financial transaction – the seller and the buyer. Like Facebook likes, someone also gives, and someone else receives it. We may hate Facebook communication a thousand times, but because our friends use it, we use it too. China or Russia may not be in love with SWIFT either, but because their trading partners use it – a source of income – they have no choice.

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But cutting off SWIFT would force Russia to create its own “Facebook.” Own international payment system. Not that Russia does not try. Such a system exists. But so far, there is no sufficient impetus for its development. This could be done if the West cut Russia off SWIFT. For Russia in particular, it would be a disaster in the beginning. But the United States would also lose. The international bypass system, bypassing the dollar, would begin to develop with greater vigor than before.

The declining global importance of the dollar means the need to accept that it will no longer be as privileged a currency as it is now. Its position in international transactions makes it easier for the United States to borrow, as the costs associated with it, even inflation, can be passed on to other countries worldwide. This is a significant advantage that no additional economic unit enjoys, nor does Europe. That is why, for example, countries such as Germany called for the establishment of a European equivalent of the SWIFT system a few years ago.

Russia expects that the West will not cut it off from SWIFT. Even if it were a disaster for Russia, it would also hurt the West. It would have to come to terms with a sharp rise in prices, social upheavals, the need to give up the Green Deal, and a way to accept the decline in the global importance of the dollar.

The cut from SWIFT and thus from the possibility of supplying gas to Europe is the Russian “Achilles’ heel.” It has the potential to disrupt Russia economically, destroying Putin’s regime. But Achilles in the Kremlin is betting that the West will not sacrifice its comforts, green visions, and privileges for Ukraine, and perhaps only its eastern part. So we will see what the actual outcome from conflict between Russia and Ukraine is for Putin and for the whole Russia.