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What is SWIFT Banking System, Can it be Used in Sanctions Against Russia? EXPLAINED

SWIFT ban would effectively cut Russia and its financial institutions from making most international business transactions.

Updated: February 25, 2022 12:08 PM IST

By News Desk | Edited by Surabhi Shaurya

What is SWIFT Banking System, Can it be Used in Sanctions Against Russia? EXPLAINED
A man walks past the stand of Russia's state-run VTB bank at the Saint Petersburg International Economic Forum on May 24, 2018 in Saint Petersburg. (AFP Photo)

New Delhi: Targeting Russia’s financial system after President Vladimir Putin’s announcement of a military operation in Ukraine, the United States said it will block assets of large Russian banks, impose export controls aimed at the nation’s high-tech needs and sanction its business oligarchs. Launching a frontal attack on his Russian counterpart, US president Joe Biden introduced a new wave of sanctions against the country in an attempt to isolate it from the global economy. The new package of sanctions including freezing the assets of 4 major Russian banks aims to cut Russia off from the US financial markets.

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“Today, I am authorizing additional strong sanctions and new limitations on what can be exhorted to Russia. This is going to impose a severe cost on the Russian economy both immediately and over time. We will limit Russia’s ability to do business in dollars, euros, pounds, and yen to be part of the global economy. We’ll limit their ability to do that”, Biden had warned last night. However, as part of its sanctions, United States opted not to cut Russia off from the SWIFT global interbank payments system.

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On being asked why that step was not taken, Biden reportedly said the sanctions imposed against Russian banks exceeded the impact of cutting Russia off from SWIFT, and other countries had failed to agree on taking the additional step at this point. “It is always an option. But right now, that’s not the position that the rest of Europe wishes to take”, Reuters quoted the US president as saying.

Leaders across the globe including Ukrainian president and Labour leader Keir Starmer had urged the US and West to cut the Russians off from the SWIFT system, a key financial network that connects thousands of banks around the world.  Besides, United Kingdom Prime Minister Boris Johnson had also called for Moscow to be excluded from SWIFT to harm the Russian economy.

What is SWIFT? 

Founded in Brussels in 1973 under the leadership of its inaugural CEO, Carl Reutersklod, SWIFT (Society for Worldwide Interbank Financial Telecommunication) is the main secure messaging system used by banks to make quick and secure cross-border payments, for smooth flow of international trade.

Who Owns SWIFT? 

Headquartered in La Hulpe, Belgium near Brussels, SWIFT is owned by its member financial institutions. Yawar Shah of Pakistan is the chairman of SWIFT. Its CEO is Javier Pérez-Tasso of Spain. SWIFT hosts an annual conference, called Sibos, specifically aimed at the financial services industry.

Would Swift Ban Affect Moscow? 

SWIFT ban would effectively cut Russia and its financial institutions from making most international business transactions. The move would come as a big setback to Russia and might have consequential repercussions on buyers of oil and gas exports denominated in US dollars.  With the ban, the country won’t be able to make profits from international sales of its oil and gas production.

Officials in Europe noted that the loss of SWIFT access by Russia could be a drag on the broader global economy. Russia has also equated a SWIFT ban to a declaration of war. And because the system cements the importance of the U.S. dollar in global finance, outright bans also carry the risk of pushing countries to use alternatives through the Chinese government or blockchain-based technologies.

Brian Frey, a former Justice Department prosecutor during the Trump administration, said while SWIFT is the primary messaging system for financial payments, “there are alternatives to the system” and cutting Russia off would create a “splashback and immediate problems for the international community.”

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