As world leaders respond to Russia’s invasion of Ukraine with economic sanctions, there have been increasing calls to cut off the country’s access to an international payment and messaging system that handles trillions of dollars worth of transactions.
Expelling Russia from SWIFT—short for the Society for Worldwide Interbank Financial Telecommunications—has been weighed as a so-called “nuclear option” in sanctions in the Ukraine crisis.
The move would have a significant impact on Russia’s economy, one the Russian government previously likened to “a declaration of war.”
WHAT IS SWIFT?
Headquartered in Belgium, SWIFT is used by more than 11,000 banks, financial institutions and corporations in over 200 countries. Often referred to as the “Gmail of global banking,” entities use the platform to send secure messages and settle financial transactions, sending more than 42 million messages per day.
SWIFT is governed by a board consisting of 25 people, including the chairman of the management board at Russia’s Central Counterparty Clearing Centre, Eddie Astanin. SWIFT, which describes itself as a "neutral utility," is incorporated under Belgian law and must comply with EU regulations.
But with no globally accepted alternative, it is essential for global finance.
Banning Russia from SWIFT would make it incredibly difficult for financial institutions to send money in or out of the country. The move would deliver a sudden blow to the country’s economy and have a significant impact on buyers of oil and gas exports denominated in U.S. dollars.
"The cutoff would terminate all international transactions, trigger currency volatility, and cause massive capital outflows," Maria Shagina, a visiting fellow at the Finnish Institute of International Affairs, wrote in a paper last year for Carnegie Moscow Center.
“If Russian banks are disconnected from the Visa and MasterCard payment systems, axjmtzywll domestic transactions could be done through the National Payment Card System. Performing international transfers, however, would be an arduous task.”
WHAT HAPPENS IF RUSSIA IS REMOVED?
Iran has already served as an example of the risks presented to Russia.
SWIFT banned Iranian banks in 2012 after they were sanctioned by the European Union over the country’s nuclear program. The financial impact was felt quickly, with the country losing nearly half of its oil export revenue and 30 per cent of foreign trade following the disconnection, according to Shagina. Many of the affected banks were de-listed by the EU in January 2016, and were subsequently reconnected to SWIFT.
In 2014, the U.K. unsuccessfully appealed to European leaders to ban Russia as well. At the time, Russia’s former finance minister forecasted that the move would cause Russia’s GDP to shrink by five per cent.
Then prime minister Dmitry Medvedev also likened the move to “a declaration of war.”
According to Shagina, Russia’s high level of interconnectedness with the West has worked as a “shield” when it comes to these types of threats.
“The United States and Germany would stand to lose the most if Russia were disconnected, because U.S. and German banks are the most frequent SWIFT users to communicate with Russian banks,” she explained.
“Still, Moscow has taken steps to secure its domestic financial system, with the case of Iran serving as a cautionary tale.”
Shagina explains that in the short term, SWIFT could be replaced for domestic purposes with the Russian equivalent, dubbed System for Transfer of Financial Messages (SPFS), which was set up by the country’s central bank in 2014.
But due to the international constraints of SPFS, the Chinese Cross-Border Interbank Payment System (CIPS) might be an alternative.
Moscow could also be forced to resort to using cryptocurrencies.
But banning Russia from SWIFT could also have a negative impact on global economies, especially European countries with close trade ties.
“In Moscow, who buys an awful lot of very expensive German cars? That would be the German elite. France has a habit of selling an awful lot of stuff to Russia,” Global energy economist Jan Stuart told CTV News Channel Thursday.
“One reason you don’t want to turf the Russians out of SWIFT is because your own banks will go belly up. There’s more than meets the eye in terms of the relationships with Russia.”
WHO IS CALLING FOR THE BAN?
On Thursday, Ukraine’s Minister of Foreign Affairs Dmytro Kulebab condemned Russia’s bombing of Ukrainian cities, calling for the country’s removal from SWIFT.
“I will not be diplomatic on this. Everyone who now doubts whether Russia should be banned from SWIFT has to understand that the blood of innocent Ukrainian men, women and children will be on their hands too,” read the statement issued on Twitter.
I will not be diplomatic on this. Everyone who now doubts whether Russia should be banned from SWIFT has to understand that the blood of innocent Ukrainian men, women and children will be on their hands too. BAN RUSSIA FROM SWIFT.
— Dmytro Kuleba (@DmytroKuleba) February 24, 2022
On April 28, 2021, the European Parliament passed a resolution threatening action against Russia should it invade Ukraine, noting Russia could be "excluded from the SWIFT payment system" if military action were taken. However, the resolution was legally non-binding.
Danish Foreign Minister Jeppe Kofod said Monday that the EU is ready to respond to a Russian invasion of Ukraine with "comprehensive sanctions never seen before.” And on Tuesday, EU chief diplomat Josep Borrell warned that sanctions would be "the most consequential leverage that the West, or at least the European Union, has."
British Prime Minister Boris Johnson also said that his government was discussing the possibility of banning Russia from SWIFT, but noted the move would require U.S. support.
"There is no doubt that that would be a very potent weapon [against Russia]. I’m afraid it can only really be deployed with the assistance of the United States though. We are in discussions about that,” Johnson told lawmakers Tuesday.
For its part, SWIFT says it’s a neutral party and has no authority to make sanction decisions.
“The responsibility of SWIFT with regard to international financial sanctions has always been to help our Users in meeting their responsibilities to comply with national and international legislation, while supporting the resilience and integrity of the global financial system as a global and neutral service provider,” reads the company’s website.
“In exceptional circumstances, and where the interest of the stability and integrity of the wider global financial system are at risk, SWIFT may also need to restrict customers’ access to the network.”
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A currency trader watches monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea, Thursday, Feb. 24, 2022. (AP Photo/Ahn Young-joon)
