Lack of Access to SWIFT Means Trouble For Russia.
Watching the conflict between Ukraine and Russia intensify as the days tick by, you may have seen many new things in the news you were unfamiliar with previously.
From Russian oligarchs to Starlink terminals, there are so many new terms playing a major role in world news. Add that to the distress and overwhelm of watching a clash between countries unfold in real time, and it’s easy to see how it could leave readers confused and unsure of what to expect next.
One new term you’ve likely heard about by now is SWIFT, thanks to the recent news announcing that the U.S., the U.K., Canada, and the European Union would disconnect SWIFT from selected Russian banks as a part of ongoing sanctions.
But how does that impact what’s going on in Ukraine — and how will it affect the lives of those around the world?
A photo taken outside SWIFT headquarters in Belgium.
JAMES ARTHUR GEKIERE/BELGA MAG/AFP via Getty Images
What is SWIFT?
Founded in 1973, the Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a secure messaging system used by financial institutions, brokers, and investment firms. If you remember the Telex, you already understand the general role of SWIFT, as it’s the modern version of that system.
SWIFT is not a bank itself, but instead plays a crucial role in networking between world banks.
It allows more than 11,000 banks to send instructions to other financial institutions, which then enables those banks to transfer funds across borders. Its services affect banks in more than 200 countries, and it plays an integral role in the movement of trillions of dollars.
What Does This Mean For Russia?
In short, the inability to use SWIFT to communicate with other banks will severely hinder Russia’s ability to get access to funds needed to continue its assault in the Ukraine.
So far seven banks have been affected and will be unable to use SWIFT as of March 12, according to Russian news agency TASS, including TB, Rossiya, Otkritie, Novikombank, Promsvyazbank, Sovcombank and VEB.RF.
Since SWIFT is the global standard for financial communication, this move will force Russia to turn to much smaller alternatives, such as the SPFS, a system established in 2014 after Russia’s invasion in Crimea resulted in economic sanctions. But SPFS is a fraction of the size of SWIFT, currently serving less than 400 users.
Another option Russia could turn to is China’s Cross-Border Interbank Payment System (CIPS), but it also has a significantly smaller reach than SWIFT.
Why Are Only Selected Russian Banks Affected?
While revoking access to SWIFT will make Russia’s invasion of the Ukraine more difficult, it also creates problems for other countries that engage in trade with it regularly.
China relies heavily on Russia for trade goods, for instance, as do the Netherlands and the United Kingdom. And the SWIFT freeze also means the U.S. economy is at risk as well.
Banning all Russian banks from accessing SWIFT could also weaken the dollar internationally, as the country cut the dollar from its sovereign wealth fund in 2021 as a way of distancing its economy from the effect of potential U.S. sanctions.
