As the US, the UK and the European Union impose new sanctions on Russia in response to its actions in Ukraine and consider increasing them, one idea under discussion involves cutting off access to a messaging system called SWIFT. It’s so central to the international financial system that any such talk rattles bankers and diplomats alike.
WHAT IS SWIFT?
Think of SWIFT, an acronym for Society for Worldwide Interbank Financial Telecommunication, as the Gmail of global banking. It delivers secure messages among more than 11,000 financial institutions and companies, in over 200 countries and territories. The message traffic – 42 million a day on average last year – includes orders and confirmations for payments, trades and currency exchanges. The member-owned cooperative, based just outside Brussels, was founded in 1973 to end reliance on the telex system.
WHY IS LOSING SWIFT ACCESS SUCH A BIG DEAL
A country cut off from SWIFT can suffer significant economic pain. That’s what happened to Iran in 2012, when its banks lost access as part of European Union sanctions targeting the country’s nuclear program and its sources of finance. (Many of the banks were reconnected in 2016 after the EU took them off its sanctions list.)
When Western nations threatened Russia’s access to SWIFT in 2014, Alexei Kudrin, a one-time finance minister close to President Vladimir Putin, estimated that it could reduce Russia’s gross domestic product by 5 per cent in a year.
Cutting Russia off from SWIFT could have ramifications for other nations as well, since Russia is a key energy supplier to Europe and countries rely on the SWIFT system to pay for fuel.
WHY THE RELUCTANCE TO CUT RUSSIA OFF FROM SWIFT?
US President Joe Biden cited the lack of unity among European nations as a reason. Another is a fear among Western officials that banning countries from SWIFT would encourage other countries to develop alternative systems.
Another concern is over collateral damage. Europe uses SWIFT to send payments for Russian natural gas it needs to heat its homes and power factories, meaning a ban could threaten supplies in the midst of the winter heating period, adding to an already heightened cost of living crisis in the region.
Plus, any “legitimate company doing legitimate business with Russia” could find itself unable to collect payment if SWIFT is restricted, said Daniel Tannebaum, head of sanctions at Oliver Wyman in New York.
For all the latest world News Click Here
