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The European Union, along with the United States and other Western partners, has announced new sanctions against Russia – over its occupation of Ukraine – which include excluding some Russian banks from the SWIFT interbank payment system.
SWIFT, or “World Bank Interbank Financial Telecommunication Company”, is a communication system that facilitates fast cross-border payments, making international trade easier.
Banks that connect to the SWIFT system and establish relationships with other banks can use the SWIFT codes to make payments.
These codes are secure and enable banks to process large volumes of transactions quickly.
SWIFT has become the main mechanism for financing international trade.
According to its Annual Review, in 2020, about 38 million SWIFT codes were circulated every day. Every year, trillions of dollars are transferred using this system.
Who owns SWIFT?
SWIFT, founded in the 1970s, is a cooperative of thousands of member institutions using the service.
Based in Belgium, SWIFT has realized a profit of 36 million euros in 2020, according to its Annual Review.
Why is SWIFT exemption so serious?
The exclusion of Russian banks from SWIFT restricts this country’s access to the world financial markets.
Russian companies and individuals will find it more difficult to pay for imports, receive payments for exports, borrow or invest abroad.
Russian banks can use other payment channels, such as telephones, messaging applications or e-mails.
These would allow Russian banks to make payments through banks in countries that have not imposed sanctions, but, as alternatives are likely to be less efficient and less secure, transaction volumes may fall and costs increase.
How does the exclusion of Russia from SWIFT affect other countries?
Exporters would consider the sale of goods in Russia as more dangerous and more expensive.
Russia is a major buyer of processed goods.
The Netherlands and Germany are its second and third largest trading partners, according to World Bank data. However, Russia is not among the top ten markets for their exports.
Foreign buyers of Russian goods will also find it more difficult – which will make them look for alternative suppliers.
But when it comes to Russian oil and gas, foreign buyers may find it more difficult to find replacement suppliers.
According to the European Commission, Russia is the EU’s main supplier of crude oil and natural gas.
What are the rules of SWIFT?
SWIFT is followed by Belgian and European Union rules, which may include economic sanctions.
“Until sanctions are imposed independently in different jurisdictions around the world, SWIFT cannot arbitrarily choose the jurisdictional sanctions regime to follow,” the SWIFT website said.
In March 2012, the European Union banned SWIFT from serving Iranian firms and individuals who have been sanctioned because of Tehran’s nuclear program. The list included central banks and other large banks.rel
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