As the United States and the European Union respond to Russia’s invasion of Ukraine with economic sanctions, cutting off the country’s access to the international payment system SWIFT has been seen as a possible “nuclear option” – here’s what it would mean and why Europe is reluctant to stop Russia from using it.
SWIFT, which stands for Society for Worldwide Interbank Financial Telecommunication, is based in Belgium and handles payment requests and messages between 11,000 financial institutions around the world, delivering 42 million messages per day in 2021.
the Washington Post compares the system to the “World Bank’s Gmail” and FinancialTimes notes that while Russia and other countries can still bank with other countries without SWIFT, it would be much more labor intensive and expensive.
Cutting Russia from SWIFT would have a significant economic impact: when the United States considered removing Russia from the platform in 2014 due to its annexation of Crimea, former Russian finance minister Alexei Kudrin felt that Russia’s gross domestic product would shrink by 5% in one year without SWIFT. , and then Prime Minister Dmitry Medvedev compared the decision to a “declaration of war”.
the FT also notes that this decision would harm Russia’s ability to benefit from oil and gas exports which account for 40% of the country’s income.
Russia has set up an alternative payment system and China also has its own system that Russia could use, but the Atlantic Council notes that both platforms are significantly smaller than SWIFT and would not compensate sufficiently the sting of being cut.
Ejecting Russia from SWIFT would hurt the EU’s ability to pay for Russian oil and gas imports it depends on, however, a senior executive comparing the move to the FT like “open Pandora’s box”.
“I will not be diplomatic about it. Anyone who now doubts that Russia should be banned from Swift should understand that the blood of innocent Ukrainian men, women and children will also be on their hands,” Ukrainian Foreign Minister Dmytro Kuleba said. tweeted Thusday. “BAN RUSSIA FROM SWIFT.”
1.5%. This is the share of SWIFT transactions in 2020 originating from Russia, according to figures cited by the FT.
What we don’t know
Whether Russia’s access to SWIFT will indeed be cut off. Some world leaders like British Prime Minister Boris Johnson have urged Russia to get kicked out of SWIFT, but Reuters reports that EU officials are still “unlikely” to take that step at this stage given the potential ramifications. “You would create a big mess in Russia, but also for cross-border payment services,” a senior executive at a foreign lender told the FT. “How would Europe pay its gas bill without SWIFT? President Joe Biden said on Thursday that cutting Russia off from SWIFT remains an “option” but that the United States has so far not taken this step because “at this time it is not the position that the rest of Europe wishes to adopt”.
Russia invaded Ukraine early Thursday morning after weeks of speculation that an attack was imminent, drawing widespread condemnation from officials around the world. The United States and other foreign governments have so far opted to respond to Russia’s aggression with economic sanctions, with Biden refusing to send American troops to Ukraine because it could start “a world war.” Countries including the US, UK, Australia, Canada, Japan and the EU had already announced sanctions, after Russian President Vladimir Putin paved the way for the attack on Monday by acknowledging officially the rebel states of Donetsk and Luhansk in eastern Ukraine. Biden on Tuesday released his administration’s “first tranche” of sanctions against Russia, which included the “total blocking” of two Russian banks from accessing Western financial markets and sanctions targeting “Russian elites and their family members.” and then unveiled additional penalties on Thursday.
Live: UK bans Russian airline, announces ‘tough’ sanctions on Russia (Forbes)
Russia Sanctions Tracker: ‘First Barrage’ of Sanctions Expands from Japan to US (Forbes)
World leaders divided over whether to kick Russia out of Swift payment system (Financial Times)
All about Swift, a possible path to Russia sanction (Washington Post)
Will Russia be cut off from Swift if Moscow invades Ukraine? (FinancialTimes)