SWIFT, the global finance arm that the West can twist

SWIFT, the global finance arm that the West can twist
A protester holds a placard reading ‘No SWIFT for Russia’ during a rally against Russia's invasion of Ukraine on February 26, 2022, in Frankfurt am Main, western Germany. (Photo: AFP)
PARIS — Exclusion from SWIFT, a very discreet but important cog in the machinery of international finance, is one of the most disruptive sanctions the West has deployed against Russia for its invasion of Ukraine.اضافة اعلان

The move had been threatened in recent weeks by the United States, the European Union and other Western allies as a means of escalating punishment of Russia for its aggressions against its ex-Soviet neighbor.

On Saturday, as the Russian military stepped up its assault on Ukrainian cities, Western allies sought to cripple the country’s banking sector and currency by cutting selected banks from the international system used to transfer money, severely hamstringing Russia’s ability to trade with most of the world.

The measures were backed by the United States, Canada, the European Commission, Britain, France, Germany and Italy. The group of world powers said in a statement it was “resolved to continue imposing costs on Russia that will further isolate Russia from the international financial system and our economies”.

What is SWIFT? Founded in 1973, the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, actually does not handle any transfers of funds itself.

But its messaging system, developed in the 1970s to replace relying upon Telex machines, provides banks the means to communicate rapidly, securely and inexpensively.

The non-listed, Belgium-based firm is actually a cooperative of banks and proclaims to remain neutral.

What does SWIFT do? Banks use the SWIFT system to send standardized messages about transfers of sums between themselves, transfers of sums for clients, and buy and sell orders for assets.

More than 11,000 financial institutions in over 200 countries use SWIFT, making it the backbone of the international financial transfer system.

Who represents SWIFT in Russia? According to the national association Rosswift, Russia is the second-largest country following the United States in terms of the number of users, with some 300 Russian financial institutions belonging to the system.

More than half of Russia’s financial institutions are members of SWIFT, it added. Russia does have its own domestic financial infrastructure, including the SPFS system for bank transfers and the Mir system for card payments, similar to the Visa and Mastercard systems.

Are there precedents for excluding countries? In November 2019, SWIFT “suspended” access to its network by certain Iranian banks.

The move followed the imposition of sanctions on Iran by the United States and threats by then-Treasury Secretary Steven Mnuchin that SWIFT would be targeted by US sanctions if it did not comply.

Is it a credible threat? Tactically, “the advantages and disadvantages are debatable,” Guntram Wolff, director of the Brussels-based Bruegel think tank, told AFP.

In practical terms, being removed from SWIFT means Russian banks can’t use it to make or receive payments with foreign financial institutions for trade transactions.

But excluding such a major country – Russia is also a major oil exporter – could spur Moscow to accelerate the development of an alternative transfer system, with China for example.

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