Recently, the US and EU have announced a ban on a myriad of Russian banks from being able to send or receive transactions via SWIFT. In essence, this means no new transactions will be processed until these financial institutions are removed from the list. For those who are not sure of what SWIFT is, SWIFT is an integral part of the world’s financial system by way of providing a prompt and reliable infrastructure for international bank communications. The initiative is part of sanctions imposed in response to Russia’s invasion in Ukraine.
What is SWIFT?
Society for Worldwide Interbank Financial Telecommunication (SWIFT) is an independent, not-for-profit organization and it is the world’s leading provider of secure financial communications, providing host and benefit locations with the most efficient and cost-effective ways to send and receive payments across borders.
SWIFT provides secure financial communications for 11,000 institutions in over 200 countries. However, the central banks from 11 countries oversee it, including Canada, France, Italy, Germany, Switzerland, the Netherlands, Japan, Sweden, The United States of America (America), The United Kingdom and Belgium. SWIFT mainly focuses on where its money will go in the business world and make sure they are able to send it to other countries effectively.
Has SWIFT Cut off a country before?
Expulsion of Iranian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was in action after The United States and Europe accused Iran of seeking to develop nuclear weapons. Being cut off from SWIFT resulted in losing a third of Iran’s foreign trade revenue.
Are all Russian banks have been cut off from SWIFT?
The SWIFT ban action against Russia is partially implemented, which has led to a few Russian banks receiving the sanctions. Pan-country ban is being held by the US and its allies which will be broadened as an escalatory action.
How does the SWIFT ban affect Russia?
Excluding Russian banks from the SWIFT platform directly impacts the economy of the country. As of now, only a few banks have received the sanctions, while escalation of the ban has been kept as a future option, while it has been ensured that the sanctions have the greatest impact on Moscow but not a major effect on European companies dealing with Russian banks for the payments of gas import. Additionally, the restrictions on the central bank of Russia will prevent it from making use of its foreign exchange reserves for mitigating the impact of SWIFT sanctions.
Some Important Points
- SWIFT, or Society for Worldwide Interbank Financial Telecommunication is a global financial messaging system. It works to “facilitate the international transfer of funds.”
- Russia is now under a SWIFT ban as punishment for invading Ukraine. Russia’s international funds depend on the Swedish-based system for cross-border transactions across the world’s financial systems.
- The SWIFT ban will have a dramatic effect on international business and Russia’s domestic economy.
- The SWIFT ban is a move to isolate Russia from the international monetary system, as Moscow has escalated its invasion of Ukraine. These sanctions are the most severe against Moscow since its forces invaded the country, and could have a significant impact on the country’s resources trade and GDP.
- SWIFT ban makes it more difficult for Russia to trade internationally, which could lead to economic instability.