![]() ![]() and EU initially threatened to disconnect Russia from SWIFT, Russia’s finance minister estimated that the move would lead to a 5 percent drop in Russian GDP. In 2012, Iran lost nearly half its oil revenues and saw a 30 percent decline in foreign trade after being removed from the SWIFT system for ramping up its nuclear program. The removal of Russian banks from SWIFT, coupled with the other extensive Western sanctions being levied, has the potential to fundamentally restructure the Russian economy. Russian capacity to adjust to SWIFT removal is severely limited by additional Western sanctions The SPFS is not as technically advanced as SWIFT, but it is widely used domestically and could serve as a functional alternative to execute foreign transactions. ![]() Today, the SPFS system is used as the primary messaging system in 20 percent of Russia’s domestic transactions, and its banking network includes 23 foreign banks. In response, Russia developed its own internal financial transaction messaging system, the System for Transfer of Financial Messages (SPFS), aimed at reducing its reliance on SWIFT. and EU threatened to cut Russian access to SWIFT as part of the sanctions package they imposed after Russia’s annexation of Crimea. However, in lieu of SWIFT, they must use slower and less-secure methods of interbank communication, such as the outdated telex telegram network or phone calls and email. Although several Russian banks are now cut off from SWIFT, they can still execute international transactions with other banks. SWIFT’s main function is to enable banks to communicate transaction information, thereby facilitating payments for imports and exports. Roughly one percent of these payment messages were linked to Russia.Ĭritically, SWIFT does not actually move or hold money or securities, nor does it function as a clearinghouse for settling transactions between banks. In 2021, the SWIFT platform processed more than 10 billion messages and facilitated trillions of dollars in cross-border payments. Based in Belgium, SWIFT is jointly owned by more than 2,000 banks and financial institutions and is overseen by the National Bank of Belgium, in partnership other major central banks, including the U.S. Today, SWIFT is the most widely used interbank messaging system in the world, with over 11,000 member banks and financial institutions in over 200 countries and territories. and European banks created the SWIFT system in 1973 to facilitate the exchange of interbank messages containing the secure payment and transfer information for settling international transactions. Understanding how the SWIFT system facilitates global financial transactionsĪ consortium of U.S. The global role of SWIFT, the implications of Russia’s removal, and the potential long-term impacts it will have on the global economy are broken down below. Russia is intricately connected to the global economy, holds large quantities of critical resources, and has been strategically preparing to weather the long-term impacts of sanctions and a removal from SWIFT since 2014, when Putin annexed Crimea. Removing the selected Russian banks from SWIFT is already having a discernible negative impact on Russia’s economy, but determining the long-term impact is more complicated. The decision to impose a selective ban is primarily due to Europe’s continued reliance on Russia for energy, and concerns that removing all Russian banks would create further turmoil in global energy markets. However, the list of those targeted did not include Sberbank or Gazprombank, two of Russia’s largest banks by assets. Seven Russian banks were removed from SWIFT, effectively denying them access to international markets. The move was the latest in a series of severe sanctions aimed at economically isolating Russia and crippling the Russian financial system in order to pressure the Putin regime to end its military operations in Ukraine. With the rapid escalation of Russia’s invasion of Ukraine, a large coalition of states, including the EU, U.S., Canada, and the UK, among others, agreed on February 26 th, 2022, to ban select Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) international payment messaging system. ![]()
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