Despite US President Joe Biden’s statements yesterday about uniting the efforts of Washington and Europe to confront the Russian aggression on Ukraine by imposing severe sanctions, there is disagreement about one area, which is Swift, Society for Worldwide Interbank Financial Telecommunications, which is known by the acronyms as SWIFT.
SWIFT, officially known as the Organization for Global Interbank Financial Telecommunication, connects more than 11,000 financial institutions around the world. It is seen as a potential nuclear option in the world of sanctions because if Russia were expelled from the SWIFT system, it could essentially be cut off from much of the global financial system.
But doing so will not be easy, and it could bring a set of costly complications for other countries, many of which depend on Russia as a supplier of energy, wheat and other commodities, and which is making some European countries hesitant about agreeing to that punishment.
SWIFT is a global organization of financial institutions that began in 1973 when 239 banks from 15 countries came together to figure out the best way to handle cross-border payments. It is a system that allows banks and other financial companies to communicate with each other about transactions that are about to occur. Therefore, banning Russia from SWIFT will limit its ability to conduct international financial transactions, and will force importers, exporters, and banks to find alternative payment methods.
Because of Europe’s heavy dependence on Russian energy exports, analysts with the New York Times said, there is reluctance among some eurozone leaders to take this step and risk purchases by making it more expensive and complex to do business with Russia.
The Financial Times also reported that British Prime Minister Boris Johnson had been pushing hard to get Russia out of the Swift regime, while German Chancellor Olaf Scholz said the move should not be included in the EU sanctions package.
President Biden emphasized that the sanctions imposed by the United States on Russian financial institutions would be the result of Russia’s exclusion from the SWIFT system. He said the expulsion of Russia from the podium remained an “option” but most of Europe was opposed to such a move for the time being.
The United States and Europe differed over whether a country would ever be taken out of the Swift system, most recently in 2018, when the administration of former President Donald Trump wanted to block Iran’s access to the system for fear of violating sanctions.
However, sanctions experts say that SWIFT is often overrated as an effective punishment tool and that cutting access to it can actually backfire by forcing Russia to find alternative ways to participate in the global economy, including stronger ties with China. Or develop cryptocurrencies.
Such a measure could accelerate Russia’s efforts to expand the use of its financial messaging service and bring it closer to China, said Emily Kilkris, a senior fellow at the Center for a New American Security. “There is a question as to whether repealing SWIFT would in itself have negative consequences for Russia,” Kilkris added.
Ferrari lawyer Michael Parker argued that Russia’s ban on SWIFT would likely open the door to other solutions, including finding alternative systems. He said the most effective first step would be to impose the kind of banking sanctions President Biden has announced.