Sanctions debate: Russia’s exclusion from Swift would affect everyone

In the USA there are voices in favor of excluding Russia from the Swift payment system because of the Kremlin’s Ukraine policy. That would have massive consequences for the country – but also for energy prices and world trade.

Perhaps the center of the global financial system lies in a small town of 7,000 people in Belgium: It’s called La Hulpe, which comes from the word “silver river”. From this place billions of dollars are coordinated every day – this is where the international payment system Swift is located.

“The Swift system runs more than a trillion dollars a day,” says payment expert Jan Oetting from the consulting firm Consileon. “You have no feeling for that, it is several times the gross national product of the whole world that goes through there in the year.”

The Path of Money with the Swift System

It just works. If a German entrepreneur wants to send money, he gives an order to his bank. If the money goes to non-European countries, then the transmission channel is usually called Swift, explains Oetting. “It’s actually quite simple: There you write the Swift code of the recipient bank, the account number in – then the money takes its way.”

The transfer order usually goes from your own bank to an intermediary bank, often a large institute, for example in the USA. From there it goes to – for example – Russia. In a sense, Swift provides the digital transfer form for this.

“Atomic bomb not only in the financial system”

Some in the US are now discussing instructing Swift to disconnect the Russian giant empire from the payment system should the situation on the edge of Ukraine escalate. Russia professor Alexander Libman from the Free University of Berlin finds clear words for this approach: “As soon as Russian banks are switched off by Swift, it is an atomic bomb not only in the financial system, but also in international trade, which will then be massively impaired.”

Because if the Russian banks are disconnected from Swift, hardly any money would initially come into Russia or out of the country. And with the flow of money, the flow of goods would also stall. That would have serious consequences for oil and gas, said Libman. “If the Russian deliveries just fail tomorrow, there could be massive price increases on the gas markets. That will lead to further complications for the European economy.”

Russia is preparing just in case

The Russians are already preparing to be disconnected, perhaps. In the meantime, they have set up their own payment system with a number of neighboring post-Soviet states. Just like the Chinese.

IT expert Jan Oetting suspects that this will not catch on internationally, but it could serve as a trick. “Russia and China have the same structure, they follow the same data format as Swift.” The systems are almost the same, they can easily be made compatible.

In concrete terms: Western banks could perhaps use Swift to send money to Russia’s neighboring countries – and then, with the Russian system, to the huge empire. Only: It would cost more – and also take a while.