US President Joe Biden has threatened Russia with tough sanctions if Russian troops invade Ukraine. A measure that experts call a “nuclear option” is under discussion: the West could cut off Russia from the most important international payment system.
We’re talking about Swift, an acronym for Society for Worldwide Interbank Financial Telecommunication. More than 11,000 banks, stock exchanges and financial service providers in 210 countries use the secure messaging system, through which around five trillion dollars are transferred to bank accounts every day. If a country loses access to Swift, an economic catastrophe threatens: many companies could neither pay for imports nor collect their exports overnight. That would be disastrous for Russia as an energy exporter. The economy could collapse and the Russian financial markets could crash.
Calls for Russia’s expulsion from Swift first emerged in 2014 as a punishment for invading the country in Crimea. Great Britain then appealed to European leaders to consider such an option. The head of the Russian state bank VTB, Andrei Kostin, called the measure “a financial atomic bomb”. Former Russian Prime Minister Dmitry Medvedev viewed a possible exclusion of Russia from Swift as a “declaration of war”.
Swift provides a secure communication system for transfers. Example: Customer A wants to transfer money to Customer B abroad. Customer A’s bank then sends a standardized Swift message to customer B’s bank, noting the sender, the amount, the account number and the bank’s Swift code (BIC code). Bank B uses this information to credit the account. Payments will be settled later – and has nothing to do with Swift anymore.
Swift is not a government agency, but a cooperative owned by major global banks. The international payment system, founded in 1973, is based in Brussels and is subject to EU law. The USA thus formally have no way of forcing Russia to be excluded from Swift. But as is so often the case, in an emergency, the right of the strongest applies. The US Congress decided in 2012 that the Swift executives would have to expect financial sanctions if the payment system provider refused to issue an order from the USA – at that time it was about Iran: The country has since been excluded from Swift and lost almost half of its oil export earnings and 30 percent of its foreign trade. After the Taliban came to power, international transfers to Afghanistan via the Swift system were also suspended – the country’s financial system has collapsed, and aid funds are barely getting through.
Russia and China have set up their own payment systems in recent years to reduce dependency on Swift and thus the risk of sanctions. The Russian payment platform “System for Transfer of Financial Messages” (SPFS) has around 400 member banks – they are only Russian institutions. Russia is trying to attract foreign banks with cheap rate offers, but SPFS has not yet been a good alternative to Swift, says Maria Shagina, an expert at the Carnegie Moscow Center, in her report: “Swift operates 24 hours a day, while SPFS only sends transfer messages on weekdays during office hours, there is also a low cap on news data.”