(ORDO NEWS) — Today, without the SWIFT system, created by the United States in 1973, international interbank transfers are impossible, writes Yeni Şafak. The author of the article avoids accusations against Russia because of the situation in Ukraine. Its purpose is to draw attention to the problem of using the Western-centric global financial system as a weapon against any country in the world.
For some time now we have been talking about the consequences of tensions between Ukraine and Russia for the region and the world. With Putin’s statements made last Monday, February 21, a new period of tension began. But today I would like to leave the aspect of international relations and its causes to the experts and touch on a new facet of the issue related to the energy and economic dimension. In this regard, I will try to explain what is happening on the basis of current events, without commenting on the “fairness” or “wrongness” of either side.
Bretton Woods and dollar
In July 1944, the Bretton Woods Agreement was signed, which is one of the most important elements of today’s established economic order. The main item on the agenda of the Bretton Woods Conference, which gave the agreement its name, was the question of what the currency regime would be like after World War II. As a result of the negotiations, the US plan was put into practice, which predicted victory in the war, and a number of decisions were made, including the creation of the IMF and the World Bank.
With the decisions made, the countries that signed the agreement set the price of one ounce of gold at $35 and adopted a fixed exchange rate regime against the dollar. Thus, the dollar began to be recognized as the world’s reserve currency. Although in 1971 US President Nixon announced the abolition of the convertibility of dollar reserves into gold, the US currency had already gained its position as the only international trade and reserve currency.
What is SWIFT?
The abbreviation “SWIFT” consists of capital letters of the English name “Society for Worldwide Interbank Financial Telecommunication”. It is a system that provides a standard for electronic funds transfers between banks around the world. Without this system, which was created in 1973 and actually started operating in 1977, international interbank transfers are not possible.
Russia and SWIFT
Now about the connection between the title of my article and the concepts that I explained in the two previous sections. As you know, Russia is a very important energy supplier for the European Union (EU). In other words, Russia sells natural gas and oil to the EU countries. As a result of this trade, payments to Russia are transferred from a bank account in the EU country that buys the goods to a bank account in Russia using the SWIFT system. So without the SWIFT system, Russia will not be able to accept payments. (Note that Russia has now developed a new alternative called the Financial Message Transfer System (SPFS), but it has not yet been widely adopted.
Against the backdrop of increased tensions between Russia and Ukraine in recent days, the issue of the introduction of economic sanctions by the US and the EU against Russia has arisen, and exclusion of Russia from the SWIFT system was mentioned as one of these sanctions. Of course, the main goal here is to prevent Russia from recovering from the sale of natural gas and oil, which is a very important part of the structure of all Russian income, and to make it difficult for Russia to pay the cost of the types of products that it imports.
Economic Security and Economic Weapons
Although it seems that at a time of such high EU energy demand, this sanction has been abandoned for the time being, taking into account the interests of the European Union, in fact, we see how the system created by the United States in 1944, and subsequently the SWIFT mechanism, introduced in 1977 year, are used as a weapon against national economies. Of course, this concerns not only Russia.
Previously, similar sanctions that threaten the economic security of states were applied to many countries, primarily Iran. As I mentioned above, here I am not getting into a discussion about whether Russia is right or not. In essence, I want to draw attention to the problem of using the Western-centric global financial system and its tools as a weapon at certain times.
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