Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

Explainer-A SWIFT primer as West moves to freeze Russia out of international payments

Published Feb 26, 2022 05:30PM ET Updated Feb 26, 2022 06:55PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Swift logo is placed on Ukrainian's and Russian's flag colors in this illustration taken, Bosnia and Herzegovina, February 25, 2022. REUTERS/Dado Ruvic/Illustration
 
CL
+1.21%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NG
+4.28%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Tom Bergin

LONDON (Reuters) - The European Union, along with the United States and other Western partners, has announced further sanctions on Russia for its invasion of Ukraine, including cutting off a number of Russian banks from the SWIFT interbank payments system.

SWIFT is the world's main international payments network. Here is more about what it does and why it matters:

WHAT IS SWIFT?

SWIFT, or the "Society for Worldwide Interbank Financial Telecommunication", is a secure messaging system that facilitates rapid cross-border payments, making international trade flow smoothly.

Banks which connect to the SWIFT system and establish relationships with other banks can use SWIFT messages to make payments.

The messages are secure so that payment instructions are typically honoured without question. This allows banks to process high volumes of transactions at speed.

It has become the principal mechanism for financing international trade. In 2020, around 38 million SWIFT 'FIN messages' were sent each day over the SWIFT platform, according to its 2020 Annual Review. Each year, trillions of dollars are transferred using the system.

WHO OWNS SWIFT?

SWIFT, founded in the 1970s, is a co-operative of thousands of member institutions which use the service.

Based in Belgium, SWIFT made a profit of €36 million in 2020, according to its 2020 Annual Review. It is run principally as a service to its members.

WHY IS A SWIFT BAN SO SERIOUS?

Excluding Russian banks from SWIFT restricts the country’s access to financial markets across the world.

Russian companies and individuals will find it harder to pay for imports and receive cash for exports, borrow or invest overseas.

Russian banks could use other channels for payments such as phones, messaging apps or email. That would let Russian banks make payments via banks in countries which have not imposed sanctions but since alternatives are likely to be less efficient and secure, transaction volumes could fall and costs rise.

HOW WOULD SWIFT BAN ON RUSSIA AFFECT OTHER COUNTRIES?

Exporters would find selling goods to Russia riskier and more expensive.

Russia is a big buyer of manufactured goods. The Netherlands and Germany are its second and third biggest trading partners, based on World Bank data, although Russia is not a top 10 export market for either country.

Foreign buyers of Russian goods would also find it more difficult, potentially prompting them to seek alternative suppliers.

But when it comes to Russian oil and gas, foreign buyers could find it harder to find replacement suppliers.

Russia is the main EU supplier of crude oil, natural gas and solid fossil fuels, according to the European Commission https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2c.html.

IS SWIFT BOUND BY ECONOMIC SANCTIONS?

SWIFT is bound by Belgian and European Union rules, which would include economic sanctions.

SWIFT's website says: "Whilst sanctions are imposed independently in different jurisdictions around the world, SWIFT cannot arbitrarily choose which jurisdiction's sanction regime to follow."

In March 2012, the European Union barred SWIFT from serving Iranian firms and individuals which had been sanctioned in relation to Tehran's nuclear programme. The list included the central bank and other big banks.

Explainer-A SWIFT primer as West moves to freeze Russia out of international payments
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email