Russia and Ukraine: what is the SWIFT network and why is it considered a key weapon to pressure the Kremlin

But for the Ukrainian president, these sanctions are not enough.

“We’re defending our state alone“, he assured Friday morning. “Like yesterday, the most powerful forces in the world are watching from afar. Did yesterday’s sanctions convince Russia? We listen to our sky and we see in our land that they were not enough.”

According to experts, one measure that could hit Moscow hard would be to cut off Russian banks’ access to the SWIFT network, an organization based in Belgium.

The Society for Worldwide Interbank and Financial Communications (SWIFT) is the main messaging system used by banks to carry out fast and secure cross-border payments.

It is used by 11,000 banking entities in more than 200 countries and allows international trade to flow smoothly.

Created in 1973, the SWIFT network transmits more than 40 million messages a dayinforming users when their payments have been sent or when they receive them.

It is believed that more than 1% of the millions of dollars that are exchanged thanks to it involve Russian transactions.

Ukrainian Foreign Minister Dmytro Kuleba called for Russia to be excluded from the system on Thursday, when EU leaders met to discuss sanctions.

“I will not be diplomatic about this. All those who now doubt whether Russia should be excluded from SWIFT must understand that the blood of innocent Ukrainian men, women and children will also be in your handsKuleba tweeted.

But Brussels refuses to support this sanction.

A key reason for its reluctance to cut off Russia’s access to the platform is that Europe uses it to pay for gas it buys from Moscow, so the move could cause problems for the bloc, given the heavy reliance on various countries. like Austria, Finland, Poland and Germany, from Russian gas.

It is believed that Germany it is one of the main opponents to delisting Russia from SWIFT.

French Finance Minister Bruno Le Maire assured on Friday that the option would only be used as a last resort.

However, countries such as the United Kingdom continue to press to apply this important sanction.

“We would like to go further, we would like to do the SWIFT system, the financial system that allows Russians to move money around the world to receive payments for their gas,” Ben Wallace, UK Defense Minister, said Friday during an intervention on the BBC.

“Unfortunately the Swift system is not under our control. It is not a unilateral decision“, he added.

For political scientist Cynthia Roberts, professor of political science at Hunter College, with the invasion that began on Thursday, Russia has once again shown that it has greater interests in Ukraine and is “willing to pay higher costs” to impose its will.

“The lofty rhetoric of some Western politicians is not in sync with the price that they and Western populations are willing to pay“, he tells BBC Mundo.

Swift was created by American and European banks, who did not want a single institution to develop its own system and create a monopoly.

The network is currently jointly owned by more than 2,000 banks and financial institutions.

The organization is overseen by the National Bank of Belgium, in partnership with major central banks from around the world, including the US Federal Reserve and the Bank of England.

When Iran was excluded from the SWIFT network in 2012, as part of the sanctions for the development of its controversial nuclear program, it lost almost half of its income from oil exports and 30% of foreign trade.

If it is decided to exclude Moscow from the system, Russian companies would lose access to normal and instant transactions provided by the network and their millionaire payments for energy and agricultural products that it exports would be severely affected.

Banks will likely have to deal directly with each other, adding extra delays and costs and ultimately reducing Russian government revenue.

Russia was threatened with expulsion from the Swift in 2014 when it annexed Crimea. Russia assured at the time that the measure would amount to a War declaration.

Western allies did not approve of the sanction, but the threat prompted Russia to develop its own system for cross-border transfers and created a National Payment Card System, known as Mir, to process card payments.

However, few foreign countries currently use it.

The elimination of Russia would harm companies that supply and buy goods from Russia. Germany would be one of the Western countries most affected.

Russia is the main supplier of oil and natural gas to the European Union, and finding alternative supplies would not be easy.

While the West took Iranian banks out of the system in 2018, the Russian economy is much larger. Russia is the EU’s fifth largest trading partner.

For the expert Cynthia Roberts there is a problem of self-interest and “interdependence”.

“Russia is a major power and a global economy and some sanctions will cause high levels of mutual damagelike (problems) in the supply of energy, minerals, wheat, etc.”, he explains.

“Russian elites have previously threatened retaliation in response to measures such as removing them from SWIFT that could range from a gas flow disruption to cyberattacks by government-sanctioned or even state-sanctioned non-state actors ( Russian)”.

Companies to which Russia owes money would have to find alternative ways to receive paymentswhich could unleash chaos in the international banking system.

Alexei Kudrin, Russia’s former finance minister, suggested that Russia’s economy could shrink by 5% if it were excluded from the SWIFT system.

But there are doubts about the lasting impact in the Russian economy. Russian banks could route payments through countries that have not imposed sanctions, such as China, which has its own payment system.

This would give China an incentive to strengthen its SWIFT rival, CIPS, and thereby boost cross-border yuan payments.

All of this could undermine the dominance of the US dollar and its pre-eminent role in the global financial system.

Hunter College’s Roberts says China and Russia have been at the forefront of countries trying to build a parallel financial system to limit their exposure to the dollar system and Western financial institutions and try to shield their economies from possible sanctions.

“Although Russia’s financial messaging system is very rudimentary, China’s is more developed and this would bring them even closer together and possibly lead to the creation of an alternative financial orbit that, in the long run, will weaken US leadership and structural power. and the Western order,” she concludes.

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