In retaliation for the Russian invasion on Ukraine, the US and Europe are set to cut off Russia. Banks from SWIFT (Society for Worldwide Interbank Financial Telecommunication) which would create would further introduce obstacles on the path of Russian banks to financial markets on a global scale.
This ousting adds on to the list of sanctions that have already been imposed on Russia, which seek to punish and isolate Russia chronically. For instance, US President Joe Biden recently announced restrictions on all exports to Russia along with sanctions against state-run enterprises and Russian banks.
SWIFT, informally called International Money Transfer, is a Belgium-based consortium that is used by about 11,000 financial institutions along with banks and companies over a range of 200 countries as a channel to establish communication for commerce and trade-related purposes across the globe. Acting as a safe messaging system, it facilitates easy communication so that banks could establish professional relationships in order to perform trade and make payments.
As the payments are made without much cross-questioning, SWIFT is able to compute and process a significantly high number of transactions in speed. According to statistics, The SWIFT system averaged about 42 million messages daily last year which enabled payments in global commerce and trade. As for in the year 2020, about 38 million messages were sent every day over the SWIFT platform, according to the 2020 Annual Review.
However, the SWIFT payment system instead of facilitating funds transfer, sends payment orders, which are in turn, processed and settled by the two parties which are engaged in the transaction.
Simply put, SWIFT is an international system for banks and international financial institutions, used as a channel for communication involving confirmations for payments and orders, currency exchanges and the like.
As per the press release, the ban “will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally.” Now that Russia finds itself isolated from SWIFT, it would have to rely on fax and email in order to establish cross-border transactions which could pose a threat to the country’s presence in the trading world. For the year 2020, Russia has constituted a total of 1.5 percent of total international transactions on SWIFT.