The Ukrainian president and government have asked the European Union to harden the sanctions already imposed on Russia. In particular, they asked to exclude Moscow from the Swift circuit. Here’s what it is and how it works.
What is the Swift Circuit?
The Society for worldwide interbank financial telecommunication is the main system used by banks to send fast and secure messages on international payments, allowing the functioning of international trade of which it has become a fundamental tool. In 2020, around 38 million transactions went through the Swift circuit every day, facilitating business for trillions of dollars.
Who does it belong to?
Founded in the seventies, it is a cooperative company under Belgian law. Its website states that it “is owned and controlled by its shareholders (financial institutions) who represent approximately 3,500 companies worldwide.” The system is overseen by the G10 central banks, as well as the European Central Bank, with the main oversight of the National Bank of Belgium.
Why would being excluded from the Swift be serious for Moscow?
Russia has the second largest number of Swift users after the United States, with around 300 Russian financial institutions joining it. In practical terms, being removed from the circuit would mean that Russian banks could not use it to make or receive payments with foreign financial institutions. Ordinary transactions should be conducted directly between banks or go through less established competing systems, increasing costs and delays.
Why is the US reluctant to be excluded?
One reason is that the impact on Russian businesses may not be as severe. The head of a major Russian bank, Vtb, recently said it could use other payment channels, such as phones, messaging apps or email. Russian banks could also pass payments through countries that have not imposed sanctions, such as China, which has set up its own competing circuit. There is also concern that an exclusion of Russia could damage the dollar’s status as a global reserve currency and accelerate the use of alternatives such as cryptocurrencies.
Would an exclusion from Swift harm other countries?
The Biden administration is also concerned that a ban will harm its allies. Russia is a major buyer of foreign manufactured goods, particularly from the Netherlands and Germany, and is also the EU’s largest supplier of crude oil, natural gas and fossil fuels, and European countries may have difficulty finding replacement suppliers.
Would the Swift be bound by economic sanctions?
In the past, the Swift has resisted calls to impose bans on certain countries, calling itself neutral. But in 2012, the European Union banned the circuit from providing services to sanctioned Iranian companies and individuals in connection with Tehran’s nuclear program, setting a precedent for action against Russia. A Swift spokesperson declined to say how the organization would respond to any US sanctions.
What does Russia say?
Nikolai Zhuravlev, deputy chairman of the Russian Federation Senate, admitted in January that the country’s expulsion from the circuit was a possibility. “If Russia were disconnected from the Swift, we would not receive foreign currency, but buyers, primarily European countries, will not receive our goods: oil, gas, metals and other important components of their imports. Is this what they want? I’m not sure, ”said Zhuravlev, quoted by the Russian news agency Tass. Zhuravlev noted that while the Swift is useful, it is not the only way to transfer money, and that a decision such as suspending a country would require unanimity among its members. “I am not sure that other countries, especially those where the share of trade with Russia is significant, will support its exclusion.”–The Guardian, Al Jazeera