Why is Russia not excluded from the SWIFT banking system? And what if that’s the case?

The initial economic sanctions against Russia for its invasion of Ukraine did not include a move to cut off the Kremlin’s access to the SWIFT international banking system – an omission that has sparked debate between world leaders.

When pressed to explain why the US has not yet called for the expulsion of Russia from SWIFT, President Biden suggested that the initial round of sanctions targeting Russian banks and exports was more severe – even as he hinted that a Some European allies oppose the measure, which some experts see as the most significant punishment for the Russian economy.

“It’s always an option,” Biden said at a news conference. “But right now, that’s not the position the rest of Europe wants to be in.”

But as fighting intensifies in Ukraine and Russian President Vladimir Putin continues to defy warnings from the international community, US and European leaders will face growing pressure to expel Russia from SWIFT. , several geopolitical observers said.

What is SWIFT and how does it work?

Launched in 1973, SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a system based in Belgium that facilitates international transactions and transfers of funds to banks across the world. around the world.

The communications network averages 42 million messages daily in 2021 alone, connecting more than 11,000 financial institutions in more than 200 countries.

President Biden
President Biden hinted that European allies are not yet ready to proceed with the ban.
Bloomberg via Getty Images

Why is the SWIFT ban a ‘nuclear option’ for punishment?

Losing access to the SWIFT system would severely impede the ability of Russia and its financial institutions to do business internationally and cause great damage to the Russian economy. The Kremlin and its affiliated businesses will have to find alternative means of coordinating their transactions – a slow and expensive process.

For example, Russia will not be able to secure a profit from international oil and gas sales – affecting an industry that provides the majority of the country’s annual revenue. Trading and exchanging currencies will be much more complicated.

In 2019, Russian Prime Minister Dmitry Medvedev said losing access to the SWIFT system would be tantamount to a declaration of war.

President Biden
President Biden said the initial sanctions against Russia were even harsher than the SWIFT ban.
Bloomberg via Getty Images

Why the SWIFT ban makes sense

Supporters of the SWIFT ban see the move as a logical step to exert maximum economic pressure on the Putin regime as it embarks on a difficult and costly military campaign.

Proponents argue that excluding Russia from SWIFT would further isolate the country’s economy in a way beyond the scope of previous sanctions targeting specific organizations or individuals. Russia has taken steps to prepare for a potential missile launch from SWIFT, but its replacement system is said to be rudimentary.

“Although Russia has tried to reduce its dependence on the SWIFT system, it remains vulnerable. Combined with increased sanctions on technology that Russia cannot obtain from China, financial sanctions of this type will have serious long-term effects,” said analyst Harley Balzer of the Association. the Atlantic Council, an expert on Russia, said in a recent blog post.

Ukrainian President Volodymyr Zelensky, top British officials and foreign ministers of NATO countries such as Estonia, Latvia and Lithuania are among those in favor of cutting SWIFT.

Illustration of SWIFT and Russian flag
Without access to SWIFT, Russia would be cut off from the global banking system.
NurPhoto via Getty Images

Arguments against the SWIFT . ban

Some experts argue that banning Russia from SWIFT will only encourage the Kremlin to pursue closer ties with China – potentially leading to the development of a rival global banking system modeled on China. Europe leads.

“By politicizing SWIFT, you motivate others to develop alternatives,” said Brian O’Toole, senior fellow at the Atlantic Council and former Treasury Department official. with the Associated Press.

A ban also risks disrupting Russia’s exports of oil and gas resources – further straining energy markets as oil is already trading near $100 a barrel. The deeper effects on international trade and imports could hurt the economies of other countries.

And some analysts warn Russia may try to use cryptocurrencies as an alternative to SWIFT, exacerbating regulatory concerns in the process.

German Foreign Minister Annalena Baerbock warned that the SWIFT ban could harm innocent individuals trying to conduct business activities abroad. French Finance Minister Bruno Le Maire said that the SWIFT ban should be seen as a “last resort” against Russia.

Dutch Prime Minister Mark Rutte said: “Some countries are hesitant because it has serious consequences for themselves.

There is a lanyard Why is Russia not excluded from the SWIFT banking system? And what if that’s the case?


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