US President Joe Biden threatens Russia with severe sanctions if Russian troops invade Ukraine. A measure is under discussion, which experts call “the nuclear option”: the West could cut Russia off from the most important international payment system.
It is Swift, short for “Society for Worldwide Interbank Financial Telecommunication”. More than 11,000 banks, stock exchanges and financial service providers in 210 countries use the secure messaging system, through which approximately five trillion dollars is transferred to bank accounts every day. If a country were to lose access to Swift, an economic catastrophe looms: overnight, many companies will not be able to pay for their imports or cash their exports. It would be disastrous for Russia as an energy exporter. The economy could collapse and Russian financial markets could collapse.
Calls for Swift’s expulsion from Russia first emerged in 2014 as a punishment for invading the country in Crimea. Britain then called on European leaders to consider such an option. The head of the Russian state bank VTB, Andrei Kostin, called the measure a “financial atomic bomb”. Former Russian Prime Minister Dmitry Medvedev considered Russia’s possible exclusion from Swift as a “declaration of war”.
Swift provides a secure communication system for transfers. Example: Customer A wants to transfer money to Customer B abroad. Client A’s bank then sends a standardized Swift message to Client B’s bank – noted above: sender, amount, account number and bank’s Swift code (BIC code). Bank B uses this information to effect the loan. Settlement of payments takes place later – and has nothing to do with Swift anymore.
Swift is not a government agency, but a cooperative owned by major global banks. The international payment system, founded in 1973, is based in Brussels and is subject to EU law. The US therefore has no formal means of forcing Russia to be excluded from Swift. But as is so often the case, in an emergency the law of the fittest applies. The US Congress ruled in 2012 that Swift executives should expect financial sanctions if the payment system provider refused to give an order from the US – at the time it was Iran The country has since been excluded from Swift and lost almost half of its oil export earnings and 30 percent of its foreign trade. After the Taliban came to power, international transfers to Afghanistan through the Swift system were also suspended – the country’s financial system collapsed and aid funds barely arrived.
Russia and China have set up their own payment systems in recent years in order to reduce their dependence on Swift and therefore the risk of sanctions. The Russian payment platform “Financial Message Transfer System” (SPFS) has about 400 member banks – there are only Russian institutions. Russia is trying to attract foreign banks with cheap tariff offers, but SPFS is not yet a good alternative to Swift, according to Maria Shagina, an expert at the Carnegie Moscow Center, in her report: “Swift works 24 hours a day. 24, while SPFS only sends forward messages on weekdays during business hours, there is also a lower upper limit for news data. “