What Is SWIFT, And Why Does It Matter In The Russia-Ukraine War?
What Is SWIFT, And Why Does It Matter In The Russia-Ukraine War?
Author Sigrid Forberg March 9 2022
Russia has been partly cut off from the SWIFT system for transferring money.
In the wake of Russia’s invasion of Ukraine, global leaders have been imposing sanctions on the country’s banks, its president, Vladimir Putin, and some of its wealthy oligarchs.
“Russia is heavily reliant on SWIFT due to its multibillion exports of hydrocarbons denominated in U.S. dollars,” she wrote. “The cutoff would terminate all international transactions, trigger currency volatility and cause massive capital outflows.”
The leaders of the European Commission, France, Germany, Italy, the U.K.,, Canada and the U.S. announced in a joint statement on Feb. 26 that they were condemning “Putin’s war of choice” and banning select Russian banks from the SWIFT messaging system. The ban notably excludes Russia’s oil and gas exports. A SWIFT ban has been called the “nuclear option” in the international community’s confrontation with Putin.
But what is SWIFT? For those who are only just hearing of this for the first time, here’s what you should know about this global financial network, as well as what impact the ban may have on Russia and the world.
What is SWIFT?
SWIFT, or the Society of Worldwide Interbank Financial Telecommunication, is a high-security messaging network for banks and financial institutions. Based in Belgium, it’s sometimes described as the Gmail of global banking.
It was created in 1973, replacing the previous telex system for cross-border payments. The idea was to create a "common language" for banks from all around the world to move money and carry out other transactions.
It has since grown to serve more than 11,000 financial institutions in 200 countries and territories. In 2021, it averaged 42 million messages per day.
Why Is That Important?
While the network doesn’t hold any assets or actually move money, access to SWIFT means funds can be exchanged between member institutions easily and securely. Other payment systems do exist, but SWIFT dominates the market.
In addition to payment instruction messages, it also transfers messages between institutions relating to everything from the trade of precious metals to traveler’s checks. Its latest report shows categories other than straightforward payments now account for well over half of its transactions.
What Does This Mean For Russia?
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