Further penalties on Russia have been imposed by the European Union, the United States, and other Western partners for its occupation of Ukraine, including the exclusion of a number of Russian banks from the SWIFT interbank payments system.
SWIFT is the primary international payments network in the world. Here’s additional information on what it does and why it matters:
SWIFT, or the “Society for Worldwide Interbank Financial Telecommunication,” is a secure communications system that enables quick cross-border payments and smooth international trade.
SWIFT messages can be used to make payments by banks that connect to the SWIFT system and build partnerships with other banks.
Because the communications are safe, payment instructions are usually followed without inquiry. This enables banks to process large amounts of transactions quickly.
It has evolved into the primary means of funding international trade. According to the SWIFT 2020 Annual Review, over 38 million SWIFT ‘FIN messages’ were delivered each day via the SWIFT infrastructure in 2020. Trillions of dollars are transmitted via the system each year.
SWIFT, which was established in the 1970s, is a cooperative of hundreds of member institutions who use the service.
SWIFT, headquartered in Belgium, achieved a profit of €36 million in 2020, according to its 2020 Annual Review. It exists primarily to serve its members.
Excluding Russian banks from SWIFT limits the country’s access to global financial markets.
Russian enterprises and people will find it more difficult to pay for imports and receive cash for exports, as well as borrow and invest abroad.
Russian banks might accept payments through other means like mobile phones, messaging applications, or email. This would allow Russian banks to make payments through banks in countries where sanctions have not been imposed, but because alternatives are likely to be less efficient and safe, transaction volumes might decline and costs rise.
Exporters would find it riskier and more costly to export goods to Russia.
Russia is a major consumer of manufactured products. According to World Bank data, the Netherlands and Germany are its second and third largest trading partners, respectively, despite neither country’s export market is Russia.
Foreign buyers of Russian commodities would face further challenges, perhaps leading them to seek new sources.
However, when it comes to Russian oil and gas, Western consumers may have a more difficult time finding new supplies.
According to the European Commission, Russia is the EU’s primary supplier of crude oil, natural gas, and solid fossil fuels.
SWIFT is subject to Belgian and European Union regulations, which may involve economic repercussions.
SWIFT’s website says: “Whilst sanctions are imposed independently in different jurisdictions around the world, SWIFT cannot arbitrarily choose which jurisdiction’s sanction regime to follow.”
The European Union blocked SWIFT from serving Iranian organisations and persons sanctioned in connection with Tehran’s nuclear programme in March 2012. The list featured the central bank and other major financial institutions.
(Adapted from Reuters.com)