Russia’s exclusion from the global SWIFT messaging banking system has always been seen as an extreme option for punishing President Vladimir Putin for his actions in Ukraine. Some did not want to impose it; The French finance minister called it a “financial nuclear weapon.” However, on February 26, the United States and its allies put aside fears of a potential blow to their economies and moved to shut down a group of Russian lenders off the grid. That left bankers and diplomats racing to understand the consequences of everything from energy exports to debt and foreign exchange markets.
What is SWIFT?
SWIFT – World Bank Interbank Financial Telecommunications Association – is Gmail for global banking. Delivers secure messaging to more than 11,000 financial institutions and companies in over 200 countries and territories, handling trillions of dollars in transactions. Message traffic – 42 million per day on average last year – includes orders and receipts for payments, trading and currency exchange. A member-owned cooperative, headquartered just outside Brussels, SWIFT was founded in 1973 to end its 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. This is 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 banks were reconnected in 2016 after the EU removed them from the sanctions list.) When Western nations threatened Russia’s accession to SWIFT in 2014, Alexei Kudrin, a former finance minister close to Putin, estimated that could reduce Russia’s gross domestic product by 5% in one year.
Who is banned?
The United States has worked with European Union partners to finalize the list of Russian banks to be cut by SWIFT. According to the EU draft, it was to include seven lenders, including the state-controlled VTB, Bank Rossiya and Bank Otkritie. Some of the targets have already faced other sanctions. Sberbank and Gazprombank were excluded from the proposal, stressing concerns about the potential economic consequences for Europe. Sberbank has twice as much assets as any other bank in Russia, and Gazprombank is a key bank for Russian energy conglomerates.
Is there an alternative to SWIFT?
Not really, or at least not yet. Since 2014, the Bank of Russia has its own financial messaging system for Russian and foreign banks. But it has only about 400 users. The National Bank of China in 2021 announced a joint venture with SWIFT, which in some circles was considered an insurance policy against disconnection from the global financial system. Digital currencies and basic technology have also been considered a threat to SWIFT for several years, but they are nowhere near as a replacement.