Withdrawal from SWIFT means that Russian banks cannot use it to make or receive payments for business transactions with foreign financial institutions.
The exclusion from SWIFT, a very thoughtful but important force in the machinery of international finance, is one of the most disruptive sanctions imposed by the West against Russia for its invasion of Ukraine.
The move was threatened in recent weeks by the United States, the European Union and other Western allies as a means of increasing Russia’s punishment for its aggression against its ex-Soviet neighbor.
On Saturday, as Russian forces intensified their attack on Ukrainian cities, Western allies sought to cripple the country’s banking sector and currency by cutting off selected banks from the international system used to transfer money, thereby Russia’s ability to trade much of the world was severely hampered. ,
The measures were supported by the United States, Canada, the European Commission, Britain, France, Germany and Italy. “It is resolved to continue to impose costs on Russia that will further isolate Russia from the international financial system and our economies,” the grouping of world powers said in a statement.
What is Swift?
Founded in 1973, the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, does not actually handle any transfer of funds itself.
But its messaging system, which was developed in the 1970s to rely on telex machines, provides banks with a means of communicating fast, securely and cheaply.
The unlisted, Belgium-based firm is actually a co-operative of banks and declares to be neutral.
What does Swift do?
Banks use the SWIFT system to send standardized messages about money transfers among themselves, money transfers to customers, and buy and sell orders for assets.
SWIFT is used by more than 11,000 financial institutions in more than 200 countries, making it the backbone of the international financial transfer system.
But its dominant role in finance has also meant that the firm has had to cooperate with authorities to stop terrorism financing.
Who represents Swift in Russia?
According to the national association Rosswift, Russia is the second largest country after the United States in terms of the number of users, with about 300 Russian financial institutions belonging to the system.
More than half of Russia’s financial institutions are members of SWIFT.
Russia has its own domestic financial infrastructure, which includes the SPFS system for bank transfers and the Mir system for card payments, similar to the Visa and MasterCard systems.
Are there any examples to exclude countries?
In November 2019, SWIFT “suspended” access to its network by some Iranian banks.
The move followed sanctions imposed on Iran by the United States and threats by then-Treasury Secretary Steven Mnuchin that SWIFT would be targeted by US sanctions if it did not comply.
Iran was already disconnected from the SWIFT network from 2012 to 2016.
Is this a credible threat?
Tactically, “the advantages and disadvantages are debatable,” Guntram Wolff, director of the Brussels-based Bruegel think tank, told AFP.
In practice, withdrawal from SWIFT means that Russian banks cannot use it to make or receive payments for business transactions with foreign financial institutions.
“Operationally it will be a real headache,” Wolff said, especially for European countries that have significant trade with Russia, their biggest supplier of natural gas.
In 2014, Western countries threatened to pull Russia out of SWIFT following the annexation of Crimea.
But excluding such a major country – Russia is also a major oil exporter – could prompt Moscow to accelerate the development of an alternative transfer system with China, for example.
(Except for the title, this story has not been edited by UttarPradeshLive.Com staff and is published from a syndicated feed.)