‘SWIFT is archaic, doesn’t stand up to modern digital age’
In the short-term being removed from SWIFT would be a problem for Russia, but in the long-term it’s an archaic analogue system for payments which should be replaced by fully digital technology, Patrick Young, expert in global financial markets, told RT.
RT:Bank bailouts and refocusing budgets - do you think the newly-approved anti-crisis plan will help the Russian economy?
Patrick Young: Well, let’s put it this way. I mean rumors of the death of the Russian economy have been strictly exaggerated so far. There is no doubt there is a problem out there; we are looking at the possibility with oil prices where they are of two and a half possibly five percent retrenching in the economy, and recession during the course of this year. What’s come out today has been an initial offering; it’s a plan from Mr. Medvedev’s office which is trying to provide a degree of a security blanket, a cushion, perhaps a mattress if you want to think about it in this way, underneath the most important parts of the economy in order to keep the wheels of economic action still going. What we are looking at is something where there is not enough money to underpin every single aspect of the Russian economy, but significant critical aspects of it are going to receive support.
Therefore there is targeting towards banks, particularly larger banks that are lending to all aspects of the Russian ‘corpocracy’. We are also seeing some measures that are coming in to help smaller businesses like agriculture and so on. And also indeed because of inflation that’s been let loose recently there seems to be some increases in pensions, so that therefore the average Russian retiree is not going to be suffering too much hardship as the result. All around, net-net, this is a safety blanket; it’s something to try out a little bit of a smoothening to stop ruffling the feathers of the Russian economy and help things come to a balance.
RT:Just several days ago the S&P credit rating agency downgraded Russia's status to junk. The agency has faced criticism in the past. It was sued for fraud, accused of market manipulation and political bias.How much do international investors rely on these ratings in their decisions?
PY: The ratings agencies provide a standard bench mark indicator in order to help investors decide on what they are going to invest in. But at the same time what you’ve said is absolutely correct. Over the course of the last five or six years rating agencies have taken a buffeting. Part of this may have been a result of their own actions, they may have been too eager to try and give people that sort of ratings that they ultimately wanted, including, it has to be said, governments. Ultimately there has been a follow-through after the course of the property crushing.We are seeing at the moment rumors coming through perhaps indeed this agency S&P is going to settle for about 1.5 billion claims against them in relation to all of the US property issues of 2007-2008, the junk mortgage debacle and so on. But at the same time ironically the politicians were most apoplectic in Europe when the rating agencies had the temerity to downgrade their own ratings. Where does this leave Russia? Ultimately it was inevitable we were on the course towards seeing probably a junk rating for Russia once S&P and the other rating agencies put in place earlier maneuvers over the course of the last couple of months. What does it actually mean for Russia per se? Look, people know Russia is an emerging economy, it is therefore more speculative, and it is always going to be slightly more risky than a country with very little borrowing.
RT:There's an idea that - as part of a new sanctions package - Russia needs to be switched off from SWIFT, the global interbank payment system. Will the EU go that far do you think?
PY: Well, look at it in this way. SWIFT is at best the steam engine behind banking. It connects together many countries in the world, it is a cooperative system owned by banks. It has come under incredible political pressure in the course of recent times. We remember the Americans were actually manipulating the system to get data out of it after September 11, 2001 which caused all sorts of kerfuffles. SWIFT is being politically manipulated at the moment. The Americans want to try and turn Russia off and out of the banking system. In the short-term that would obviously be very difficult; it could mean we resort to carrying suitcases of cash over the Russian border. In the medium to long-term though we have to understand something:SWIFT is the analogue system for payments, it does not stand up to the modern digital age, it is an archaic system, and it is the problem at the core of the international banking system rather than the solution. And therefore as we have already seen talk is been abounding of possibly an intro Russian solution. The possibility that Russia and China may unite together. In the short-term being removed from SWIFT is political dynamite. In the medium to long-term SWIFT will be the loser because the modern payment technology - whether it’s the bitcoin blockchain or something else that’s fully digital - it’s going to take over from the old medieval knotted ropes of the analogue transistor payment system which is SWIFT.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.