Russia & SWIFT: The end of the messaging system hegemony?
- What is SWIFT? International payment systems are like the body’s nervous system. They take information, process it, and trigger transactions. The central nervous system of global finance remains the Society for Worldwide Interbank Financial Telecommunication (SWIFT), founded in 1973. SWIFT is a secure messaging system that is vital for the smooth functioning of the global financial system. It is used by more than 11,000 financial institutions globally and facilitates transactions amounting to trillions of dollars.
- Threats to disconnect Russia from SWIFT are not new. In 2014, after Russia annexed Crimea, many leaders believed such a decoupling might curtail Russian ambitions. However, due in part to trade ties, it was never implemented. On 29 April 2021, the EU Parliament moved to cut off Russia from SWIFT if it invaded Ukraine. That became a reality on 24 February, 2022.
- How is Russia impacted by the sanctions? A SWIFT ban is a less severe measure than excluding banks from using dollar and euro payment systems, or prohibiting other entities from dealing with them. In Russia’s case, the impact of the SWIFT ban is diminished by excluding key banks that facilitate energy-related transactions, which is a significant relief for a country that is a major commodity exporter.
- Other existing channels to SWIFT? In Russia (SPFS), China (CIPS), and India (SFMS). Moreover, a new way of paying is emerging with private cryptocurrencies and central bank digital currencies (CBDCs).