Governments across the world – including the UK, the US and Canada – have called for Russia to be ‘banned’ from international payments service the Society for Worldwide Interbank Financial Telecommunication (SWIFT) following its invasion of Eastern European country Ukraine. While some consider this would be an effective way to sanction Russia, Western businesses which have dealings with Russian companies could also be hit hard.
The calls came following a plea from Ukraine’s president, Volodymyr Zelensky, to exclude Russian banks from the system as part of new sanctions on Moscow. “A package of additional tough sanctions against Russia from the EU is approaching. Discussed all the details with [French President Emmanuel Macron],” Zelensky wrote on Twitter on Thursday. “We demand the disconnection of Russia from SWIFT… and other effective steps to stop the aggressor.”
Prime Minister Boris Johnson and Labour leader Keir Starmer have both called for a SWIFT ban on Russia to be implemented. The prime minister’s spokesman said Johnson was working with other NATO countries to find a way to limit Russian banks’ access to the system, while speaking in the House of Commons on Thursday, Starmer said the “hardest possible sanctions” must be directed at Russia. “It must be isolated, its finances frozen, its ability to function crippled,” Starmer said. “That means excluding Russia from the financial mechanisms like SWIFT and banning trade in Russian sovereign debt.”
What is SWIFT and why do countries want to ban Russia?
Founded 40 years ago as a global cooperative of banks, SWIFT is known for its financial messaging services and routing system.
Covering every continent, 11,000 institutions in more than 200 countries and territories use the service. It says it enables its users to “safely and securely” communicate as well as improve the adoption of industry standards, and up to 50.3 million messages are sent using SWIFT every day, according to the organisation’s website.
Russia’s total number of SWIFT transactions is lower than the UK or US, but Russian organisations are still regular users of the system.
Why are countries considering banning Russia from SWIFT?
As SWIFT is a global financial messaging service and routing system, cutting Russian banks off from the system would make it far more difficult for them to send and receive international payments.
Though the UK and the US have said such a move isn't off the table, with US President Joe Biden declaring it is "always an option" the European Union countries have been unable to come to a joint position on Russia's participation in SWIFT. While foreign ministers of the Baltic States support a SWIFT ban, other countries such as Germany oppose the move.
Would banning Russia from SWIFT work?
The stance in areas of Europe is because businesses in other European countries are likely to be harmed by a ban. And while excluding Russia from the SWIFT network would potentially cause some disruption, experts are not convinced that it will have a long-term impact.
Alex Lord, a Europe and Eurasia analyst from intelligence and geopolitical risk company, Sibylline, believes that banning Russia from SWIFT would hit companies in the West, particularly financial institutions, immediately.
“[If banning Russia from SWIFT] were to happen the most immediate impact would be on Western banks that are owed money by Russia, especially German banks,” he told Tech Monitor.
“However, while this would also cause disruption across Russian financial systems in the short term, Russia has its own alternative payment system, SPFS, and so it has been preparing for the possibility of a disconnection from SWIFT for many years.”
The System for Transfer of Financial Messages (SPFS) was created by the Central Bank of Russia in 2014. According to Moscow Times, one-fifth of domestic payments are made using the system and has over 400 domestic users and 38 banks from nine countries.
It is not, however, not unheard of to ban countries from SWIFT. In 2018, the US was successful in having Iran banned as part of a wider dispute over trade and nuclear weapons.
Will Russia move to cryptocurrencies?
Cryptocurrencies have not been favoured in Russia, with the Central Bank of Russia proposing a ban on the mining and use of digital currencies. According to Reuters, the bank says that cryptocurrencies threaten financial stability, citizens’ well-being and its own monetary policy sovereignty. But plans for the ban were withdrawn earlier this month, with tighter regulation proposed instead. This could be opportunely timed in the face of any exclusion from SWIFT.
“By their nature as a decentralised means of exchange, cryptocurrencies will provide extensive opportunities for Russia to circumvent international sanctions," Lord argues. "The example of North Korea funding much of its budget through thefts of cryptocurrency is testament to the ability of regimes to weather financial sanctions.”
However, Professor Alistair Milne, an economist at Loughborough University, says cryptocurrency won’t be suitable for big business. “Russian individuals and firms could use cryptocurrencies and stablecoins as a means for moving smaller sums of money internationally [such as] exchange dollars for Bitcoin using an exchange in the US,” he says. “But the liquidity [is] not there for transactions in the tens or hundreds of millions of dollars.”