US and Europe block some Russian banks from SWIFT

A coalition of NATO member countries has committed to new measures designed to separate Russia from the global financial system, countries announced in a joint letter today. The letter, signed by the United States, the UK, Canada and European allies, includes new measures to isolate Russia’s central bank and announces a new transatlantic task force to freeze the foreign assets of sanctioned individuals.

In a dramatic escalation, the order also blocks selected Russian banks from using SWIFT – the international payment system used by banks to send money around the world.

SWIFT, which stands for The Society for Worldwide Interbank Financial Telecommunication, is a cooperative company based in Belgium, which includes the largest banks in Europe. The organization’s eponymous payment network does not actually exchange money, but is used to verify payment instructions between banks. Its services are used daily to handle some 42 million exchanges in more than 200 countries.

Exactly what effects the expulsion from SWIFT will have on the political and military situation in Ukraine is difficult to predict, but the move will certainly be painful for Russian banks and markets, which are already the target of several financial sanctions.

A commentary article by the think tank Carnegie Moscow Center in 2021 described expulsion from SWIFT as a “nuclear option” that would hit Russia particularly hard, mainly because of the country’s reliance on energy exports denominated in US dollars. “The close would end all international transactions, cause currency volatility and cause massive capital outflows,” wrote the author, Maria Shagina.

In particular, the order does not impose a total ban on Russian access to SWIFT, but commits to “ensure that selected Russian banks are removed from the SWIFT messaging system.”

When Iran was kicked out of SWIFT in 2012 — the first time a country was kicked off the grid — it destroyed nearly half the value of the country’s oil sector, reducing annual exports from $92.5 billion to $52. billion. In 2016, Iranian banks were reconnected to SWIFT.

But Russia has also been preparing for this possibility for years. Expulsion from SWIFT was first proposed in 2014 in response to the country’s incursions into Ukraine’s Donbas region, and that year Russia set up its own domestic alternative to SWIFT, the System for Transfer of Financial Messages, or SPFS. China also has a rival system called Cross-Border Interbank Payment System, or CIPS. Neither has the support or international adoption of SWIFT, but could offer alternatives in the long run.

Frank Broholm had acquired considerable experience in writing and editing publications before recruited by The Media Today Chronicle News portal as Editorial Manager. His key task is to conduct effective business reviews based on the most recent business…