As Western governments threaten sanctions against Russia for its invasion of Ukraine, one specific measure could hit the Russian economy particularly hard.
A proposal to have Russia removed from a network that allows easy financial transactions across borders is being considered by some governments, including the United States.
“All options remain on the table. But it’s probably not going to be the case that you’ll see SWIFT in the initial rollout package,” Daleep Singh, a deputy national security adviser, told reporters.
What is SWIFT and what happens if the Russians are cut off from it?
What is SWIFT?
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a high-security network that connects financial institutions around the world.
It is used by different financial institutions to send and receive information, such as instructions for transferring money across borders.
While it is used to process transactions, it does not move or hold money and securities. SWIFT uses standardized codes for instructions that enable banks to process payments quickly.
It was founded in 1973. In 2021, the service was used by more than 11,000 financial institutions in more than 200 countries. It processes around 10 billion financial messages a year.
Who owns SWIFT?
SWIFT is owned by member banks. It is governed by a 25-member board of directors. According to its website, it is overseen by the G10 central banks — Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Great Britain, the United States, Switzerland and Sweden — as well as the European Central Bank.
How is it used?
The format is used by financial institutions to facilitate cross-border payments.
For instance, if a company in France is buying a product from Russia, the French company can transfer money from its French bank account to the Russian company’s bank account by using the Russian company’s account number and its SWIFT code.
The French company will then send a message via SWIFT to the Russian company that the transfer of the money is incoming, and that it can access the funds.
What happens if Russia is removed from SWIFT?
If Russia is removed from SWIFT, the country’s ability to do business with other countries would be impacted. Shipments of metals, oil, gas and other commodities could stop for at least some period of time.
“If Russia is disconnected from SWIFT, then we will not receive [foreign] currency, but buyers, European countries in the first place, will not receive our goods,” Nikolai Zhuravlev, vice speaker of Russia’s upper house of parliament, said last month.
According to the Financial Times, the European Central Bank has warned lenders that Russia may be suspended from SWIFT.
If Russia is suspended from SWIFT, the country would see a significant economic disruption for a period of time, Elina Ribakova, an economist at the Washington-based Institute for International Finance, told Radio Free Europe.
The disruption could cause the Russian economy to contract and send the country’s currency, the ruble, tumbling in the short term, Ribakova said.
A major disruption would likely be temporary, though, as Russia would have some tools to combat a suspension.
What can Russia do about it?
Russia does have its own payment system, the System for Transfer of Financial Messages (SPFS), but it is a much smaller operation than SWIFT.
SPFS has around 400 users and is responsible for about 20% of domestic transfers, so being cut off from SWIFT would cause major financial problems for the country.
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