In a joint statement, the United States, the United Kingdom, Canada, Germany, France, Italy, and the European Commission announced that “selected Russian banks” would be removed from the Society for Worldwide Interbank Financial Telecommunication system of messaging, a critical tool for international banking that also affects digitalization.
“Removing Russia from this will ensure that all of these banks are removed from the swift and hurt their capacity to operate globally,” the group stated.
As soon as Russia’s attacks on Ukraine provoked international sanctions, calls to withdraw Russia from SWIFT began. However, some partners were hesitant to deploy the “financial nuclear option,” as French Finance Minister Bruno Lemaire put it because it would make it more difficult for European investors to reclaim payments on the almost $30 billion in debt owed to them by Russian firms and individuals.
What is swift?
Swift, which stands for “the global provider of secure financial messaging services,” describes itself as
“the global provider of secure financial messaging services.”
It isn’t a bank because it doesn’t manage individual or corporate accounts or hold third-party funds. SWIFT is a messaging system for international payments that connects over 11,000 financial institutions around the world, including the Federal Reserve System of the United States, the Bank of England, and the European Central Bank.
What did the US and EU decide about Russia and SWIFT?
The US, EU, and their allies announced in a joint statement that they would be banning certain Russian institutions from the SWIFT financial messaging system that also affects affiliate marketing.
“As Russian forces launch an assault on Kyiv and other Ukrainian cities,” the coalition declared, “we are determined to continue exacting costs on Russia that will further isolate Russia from the world financial system and our economies.”
South Korea has declared that it will join the effort to ban certain Russian banks from the international payments system, but no details on which Russian banks will be affected have been disclosed.
How will Russia be affected by its removal from SWIFT?
According to the Russian National Swift Association, the SWIFT network has roughly 300 banks and financial institutions in Russia, making it the second-largest group of customers outside of the United States. In Russia, SWIFT is used by more than half of all credit institutions. If an institution is removed from the cooperative network, it will no longer be able to send or receive international payments via SWIFT. According to a 2021 analysis, excluding all Russian banks from SWIFT would result in a 5% drop in Russia’s gross domestic product. According to the BBC, Iran lost 30% of its overseas trade when it was kicked out of SWIFT in 2012.
However, the coalition has not specified which or how many banks will be targeted. Furthermore, SWIFT is not Russia’s sole alternative. China’s Cross-Border Interbank Payment System, a global payment messaging system with around 80 financial institutions as members as of the end of 2021, is expanding. According to Asia Markets, at least 23 Russian banks employ CIPS, and more may simply convert.
The departure of Russian banks from SWIFT,
According to Nikolay Zhuravlev, deputy speaker of Russia’s Federation Council, would be disastrous to Europeans. “We will not get [foreign] currency if Russia is unplugged from SWIFT,”
Zhuravlev stated in an interview with state-owned news outlet TASS. “However, our goods — oil, gas, metals, and other major components of their imports — will not be delivered to purchasers, mostly European countries. Do they require it? I’m not certain.”
Conclusion
In Ukraine, many of the fundraising organizations work and help the Ukrainian people. Along with the removal of Russian banks from the SWIFT decision, the EU and US also committed to restricting the Russian National Bank from deploying its reserves and making it harder for wealthy Russians to buy “golden passports” and become citizens of other countries.
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