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Russia-Ukraine war: What is SWIFT? How cutting off Russian banks could affect Moscow
Russia-Ukraine crisis: Germany was initially hesitant to cut off a number of Russian banks from the SWIFT interbank payments system but caved in as pressure mounted.
The US, Canada, and European Commission on Sunday announced further restrictive measures against Moscow, including the removal of selected Russian banks from the SWIFT messaging system, over the invasion of Ukraine. The leaders of the western countries, in a joint statement, condemned Russian President Vladimir Putin’s "war of choice and attacks" on the sovereign nation and people of Ukraine and made several pledges in a bid to restore the status quo ante.
Germany was initially hesitant to cut off a number of Russian banks from the SWIFT interbank payments system but caved in as pressure mounted.
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What is SWIFT?
The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is the world’s international payments network. It doesn't handle any transfers of funds itself but, through its messaging system, facilitates rapid cross border payments in a secure and inexpensive manner. The SWIFT messaging system was developed in the 1970s to replace relying upon Telex machines.
Who owns SWIFT?
Founded in the 1970s, the Belgium-based firm is a co-operative of banks that use the messaging service. More than 11,000 financial institutions in over 200 countries use the international payments system, with the US and Russia leading in terms of the number of users. According to the national association Rosswift, about 300 Russian financial institutions use SWIFT.
How does SWIFT work?
Financial institutions connected to SWIFT use its messaging system to establish relationships with other banks and make payments. The secure messaging system allows banks to honour the payment instructions without question, subsequently helping banks process high volumes of transactions at speed. Each year, trillions of dollars are transferred using the system.
How could a SWIFT ban affect Russia?
Banning Russian banks from availing SWIFT services restricts the country’s access to financial markets across the world. Not only would it make it harder for Russian companies and individuals to pay for imports and receive cash for exports, but selling goods to Russia is also bound to become riskier and more expensive.
While Russian banks could use alternative messaging systems such as phones, messaging apps or email to make payments via banks in countries that have not imposed sanctions, they are likely to be less efficient and secure, transaction volumes could fall and costs rise.
(With inputs from Reuters, AFP)
