after Invasion of Ukraine Western countries have discussed what economic sanctions they will impose on Russia to harm the country’s economy, hoping that in the medium and long term they will have repercussions on the expansion and aggression of Vladimir Putin. Among the hypotheses, one of the most talked about is the exclusion of Russian banks from the SWIFT system, which is the system that connects financial and banking institutions of different countries and allows primarily to make international payments.
It is a sanction that the United States has already ruled out imposing, which, according to developments, was not decided upon even by the European Council on Thursday night. In fact, it is considered one of the most severe economic sanctions and could have consequences for European countries, as it will make it more difficult and expensive to pay for gas supplies to Russia. According to the most pessimistic person, this may be impossible in some cases, with the consequent disruption of the supply.
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a company established since 1973 and headquartered in Belgium. It is neither a payment system nor a bank, but a communication network for banking institutions. Prior to the creation of SWIFT, banks would send payments via the TELEX system, an evolution of the telegraph to quickly send written communications.
More than 11 thousand financial institutions in the world join the SWIFT system and most of the global banks and so far the entire international banking system depends on this network because it is the basis of all transactions. Each bank is allowed to verify the identity of the institution to which it sends or from which it receives payments, through an associated alphanumeric code (BIC, Bank Identifier Code) that serves to identify the specific bank for which the payment is intended. In 2020, Russian banks were responsible for 1.5 percent of transactions on the system, Secondly The financial times.
SWIFT also links banks that have not entered into agreements to communicate with each other, through intermediary banks. For example, if you have to make a payment to a Chinese bank with which an Italian bank does not have a commercial agreement, the SWIFT system automatically searches for a bank that acts as an intermediary.
how he wrote The The New York TimesExcluding Russia from the system is considered the “nuclear option” of sanctions, because it effectively excludes the country from the international financial system. If the penalty is applied without exception, the sanctions will force Russian exporters and importers to find alternative solutions to payments, which are more expensive, cumbersome and less secure: which will obviously have a significant impact on the local economy, but will also have the same consequences for those in the rest of the country . The world either exports goods to Russia or has to import them. Given Western dependence on Russian gas and oil, this could be a major problem.
Secondly The financial timesBritish Prime Minister Boris Johnson was primarily to push for Russia’s exclusion from the SWIFT system, while German Chancellor Olaf Schulz particularly opposed him. Other rebuilding also includes Italian Prime Minister Mario Draghi among European leaders reluctant to resort to such punishment. In his speech Thursday night, US President Joe Biden attributed to European countries the decision not to exclude Russia from the transaction system: “It has always been an option, but at the moment it is not a position that the rest of the world wants.” A similar difference occurred already in 2018 when Iran could be excluded from the SWIFT system, again in the context of international sanctions: it was the Belgian company itself that did so, fearing the violation of other sanctions against those who do business with the village.
However, some experts argue that excluding Russia from the SWIFT system could bring it closer to the Chinese economy, with consequences that would harm the West. Among the alternative payment solutions that Russian banks can use is Cips (Interbank Cross-Border Payment System), a Chinese competitor to SWIFT.
In the case of economic transactions in Europe, the SEPA scheme for credit transfers came into force in 2016. SEPA, which stands for Single European Payments Area, is a European network that allows you to make transfers in euros within the European Union, Iceland, Norway, Liechtenstein, Switzerland, Andorra, the Principality of Monaco, San Marino, the Vatican and the United Kingdom . SEPA has made payments between European countries easier by eliminating the need to enter a BIC code when making an international transfer. For this reason, all transfers made outside the SEPA area using the SWIFT system are also defined as non-SEPA affiliated.
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