Economy 25 February 2022, 1:39pm

Some Russian bank cards will not work abroad

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Clients of Russian banks that were included on a new sanctions list will not be able to use their cards abroad or pay online in stores registered in countries that supported the sanctions, Reuters cited Russia's central bank as saying on Friday.

bankkártya közelről piros chip érintésmentes

The cards will keep working in Russia without restrictions, the central bank added in the statement.

Hungarian newswire MTI cited the Russian central bank as warning that cards from blacklisted banks cannot be used for Apple Pay and Google Pay. However, the central bank stressed that the funds in the accounts linked to the cards are fully available. The financial institutions hit by the sanctions are the banks of the VTB Group, Sovkombank, Novikombank, Promsvyazbank (PSB) and Otkritie, and partly Sberbank.

As we reported earlier today, the latest, tougher sanctions package does not include the disconnection of Russian banks from the world's main international payments network SWIFT. According to press reports, several countries, including Germany, Italy and Hungary, were against it.

What is the SWIFT system?
Behind most international money and security transfers is the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system. SWIFT is a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.

More than 11,000 SWIFT member institutions sent an average of 42 million messages per day through the network in 2021, marking an increase of 11.4% from 2020. Source: Investopedia

If Russia was kicked out of the SWIFT, which European countries use to purchase Russian gas, the country's international financial flows and trade would be significantly slowed down and made uncertain. Even though they have their own messaging system, it has much less global coverage.

If the EU resorted to this sanction, Russia's GDP could contract by as much as 5.0%. The ommission of the SWIFT ban from the sanctions package has irked Ukraine, and created friction between Kyiv and EU countries like Italy.

Italian Prime Minister Mario Draghi told Italian lawmakers on Friday morning that any sanctions “required serious consideration of the effect on our own economies,” but pledged that EU was “ready to respond with even tougher measures, if these are shown to be insufficient.”

He also said Russia's invasion of Ukraine had demonstrated the EU's “imprudence of not better diversifying our energy sources.” Moving forward, the bloc should consider creating common energy stocks, increasing the supplies of liquefied natural gas, making greater use of alternative gas pipelines, increasing domestic energy production and better developing renewables, Politico cited Draghi as saying.

The SWIFT ban for Russia would also hurt Europe, firstly because the banking sector of various EU Member States have significant Russian exposure, and secondly because European countries use SWIFT to pay for Russian natural gas and oil. In this sense, Europe would shoot itself in the leg by disconnecting Russia from the SWIFT.