LONDON (Parliament Politics Magazine) – The removal from Swift is considered one of the most severe restrictions imposed by the West.
The United Kingdom, the European Union, the United States, and Canada have decided to bar a number of Russian banks from using Swift, the key international payment system.
The final list of businesses is still being compiled, according to reports.
The allies from the West stated the measure was in response to Vladimir Putin’s escalating attack on Ukraine in an united statement.
“As Russian forces launch an assault on Kyiv and other Ukrainian cities,” they added, “we are determined to continue imposing penalties on Russia that will further isolate Russia from the international financial system and our economies.”
The assets of Russia’s central bank will also be frozen, limiting the country’s ability to access its foreign reserves.
The safeguards will be put in place during the next few days.
It signals a step up in the West’s sanctions against Russia, which include sanctions against the defence industry, Russian banks and hundreds of companies and individuals.
As the West prepares to impose yet another round of sanctions, let’s examine the Swift payment system and its implications for Russia.
What exactly is SWIFT?
The Society for Worldwide Interbank Financial Telecommunication (Swift) is an acronym for the Society for Worldwide Interbank Financial Telecommunication.
It is a high-security network responsible for connecting financial institutions all over the world, and it was founded in the 1970s in Belgium.
More than 11,000 banks use it to receive and send data, such as instructions for cross-border money transfers.
It is critical for international trade.
Swift helps international trade to flow seamlessly and rapidly, with around 38 million transactions sent each day in 2020.
Swift delivers financial messages in a secure manner, but it does not retain accounts for its users or execute any sort of clearing or settlement.
What effect will isolating Russia have?
For some time, Britain had been asking for action on Swift, which one minister termed as the “ultimate economic sanction.”
To obtain payments for its gas and oil, Russia relies on the Swift system for moving the money around the world.
As a result of the exclusion of several of its banks, the country’s capacity to do business and trade with other countries will be harmed.
Russian imports and exports are effectively blocked by the move.
Because practically all banks use Swift, its removal is considered as one of the most severe restrictions imposed by the West.
In the past, just one country — Iran – was barred from the system, and it lost 30% of its foreign trade as a result.
“We are cutting Swift payments to Russia precisely so they cannot fund this war machine any more,” Foreign Secretary Liz Truss said on Sunday.
Are there any concerns about repercussions for the West?
Russia’s exclusion from Swift could have ramifications for European countries.
According to Maria Shagina of the Carnegie Moscow Centre, Germany and the US stand to lose the most. The reason is that the banks in these countries most frequently use SWIFT with Russian banks.
The UK, however, should be spared from this, as Bank of England Governor Andrew Bailey recently told MPs that British banks had very low exposure to Russia.
Financial analysts believe the move will shock global markets.
According to the Telegraph, some Western officials are afraid that the action could pose a “security risk” to the West.
