Will the West Ban Swift Payment System from Russia Following Ukraine Invasion?
Western leaders could ban Russia from a crucial global payments system as they step up pressure on Moscow following the invasion of Ukraine.
Sanctions have already been imposed on Russia – including by the UK – in a bid to bring Vladimir Putin to the negotiating table.
“This is the first tranche, the first barrage of what we are prepared to do,” Prime Minister Boris Johnson said after taking action against five Russian banks and three businessmen close to President Putin.
Concerns: A move to ban Swift’s Russia would be opposed by the Treasury and Chancellor Rishi Sunak (pictured) amid fears it will do more harm than good
Another option mooted by Western leaders, including US President Joe Biden, is to bar Russia’s access to the Swift international payment system.
However, such a move would be opposed by the Treasury and Chancellor Rishi Sunak, fearing it would do more harm than good.
Swift – the Society for Worldwide Interbank Financial Telecommunication – is little known but is one of the most vital financial systems in the world, supporting trillions of dollars in transactions daily.
Founded in Brussels in 1973, Swift acts as a messaging system for banks, transmitting payment requests and keeping track of them on servers in Europe and the United States.
It was formed by US and European banks because Citi was developing its own network and its rivals hated the idea of a monopoly in private hands. It is now owned by more than 2,000 banks and financial institutions.
It handles 42 million messages a day worth £1.1 trillion, including orders and payment confirmations, transactions and currency exchanges.
Experts say cutting off Russia would cause a serious disruption of payments for the country’s businesses, damaging its mighty oil and gas industry.
Russia is a frequent user of Swift, accounting for 1.5% of global transactions, and officials estimated the shutdown could cause the country’s economy to shrink by 5%.
In 2012, Iranian banks were blocked from Swift and the effects were devastating, with the Middle Eastern nation’s oil exports dropping from 3 million barrels per day to 1 million per day.
Russia currently exports 5 million barrels per day, more than half of which is shipped to European countries.
Susannah Streeter, investment analyst at Hargreaves Lansdown, said: “The move would be stealthy sanctions, hurting Russia without targeting specific companies or banks.”
“Banning Swift’s Russia would make it harder to do business with the West, but it wouldn’t cut off vital energy supplies that are needed.”
Ultimately, the final decision will be made in Washington, as 40% of Swift payment flows are in US dollars.
Labor leader Sir Keir Starmer has called for Russia to be blocked from Swift.
It’s used by ordinary people as well as businesses, and critics of the plans fear they’ll be taken as collateral damage.
There are also question marks over whether the sanctions would have the desired effect given that Russia holds billions in foreign exchange reserves.
A second analyst said: “The country’s foreign exchange reserves have reached £470bn, its public debt has fallen and its debt-to-GDP ratio is 12%.
“In the current context, Russia can largely resist Western sanctions. It has also turned to China for much of its business.
Paying via Swift is easy to do and is a service offered by most major banks. It has been facilitated in recent years by online banking start-ups like Wise offering it for a fee.
But there are major challengers to the system, including Facebook’s Project Diem, which hopes to use blockchain to disrupt payment systems.
Some of Swift’s members also dispute this. JP Morgan is developing a blockchain system called Onyx with a messaging system called Liink, which is already moving “billions every day.”
Russia has also developed an alternative messaging system called SPFS, which handles around a fifth of domestic payments, but it’s still less capable and more limited than Swift.