One of the most painful possible economic sanctions against Russia amid the Ukraine invasion is cutting off the country from the SWIFT financial system. In late February, the U.S., E.U., and other allies announced suspending selected Russian banks from SWIFT, essentially blocking them from international transfers.
Across the political aisle in the U.S., politicians are calling for more drastic measures.
“I favor going further, I favor expelling them from SWIFT,” Rep. Adam Schiff (D-CA) said.
“Cut Russia out of the SWIFT transaction program, that is literally a financial lifeline to their country,” former Republican Vice President Mike Pence said.
What is SWIFT?
SWIFT stands for Society of Worldwide Interbank Financial Telecommunication. It is the global standard for sending money around the world, connecting more than 11,000 banking institutions across more than 200 countries and territories.
The Belgium-based cooperative is not a bank but a messaging system, helping move billions of dollars every day between banks as long as they have a SWIFT code.
For example, Chase Bank’s SWIFT code looks like this: CHASUS33. The first four characters indicate the institute code (CHAS), the second two are the country code (US), and the next two are the location or city code (33 is New York).
How does it work?
Say you’re in the U.S. and you want to send money to a friend in Germany. You can walk into your U.S. bank with your friend’s account number and their bank’s SWIFT code. Your bank sends a SWIFT message for payment transfer, the friend’s bank in Germany receives the SWIFT message and only then clears the money to their account.
Across hundreds of countries, SWIFT means connected financial institutions speak the same language. In 2021, SWIFT recorded an average 42 million messages per day.
If a country loses access to SWIFT, there is economic pain on both sides. It stops international money from flowing into the country, but it also keeps money from flowing out. Effectively, shutting off access blocks exports and imports.
Initially, Germany was reluctant to agree to SWIFT sanctions against Russia, worried that it would put Russia deliveries of gas at risk.
“We are working flat out on how to limit the collateral damage of decoupling from SWIFT in such a way that it affects the right people,” German Foreign Minister Annalena Baerbock and Vice Chancellor Robert Habeck said in a statement.
Still, the country stepped behind the measure for targeted restrictions, which already had broad support among the European Union, United Kingdom, U.S. and more.
Cutting off banks or countries from SWIFT is not a decision the U.S. or any one country can make alone. SWIFT is controlled by a collective of nations from the Group of 10, namely Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Switzerland, Sweden, the U.K. and U.S.
Rarely is an entire country suspended or banned from SWIFT. North Korea and Iran are two in recent history to face this punishment. When co-op nations considered the SWIFT option against Russia in the 2014 Crimea invasion, Russia declared that being kicked out of SWIFT would be the equivalent to a declaration of war.
“SWIFT is the financial nuclear weapon,” French Finance Minister Bruno Le Maire said in late February. “The fact remains that when you have a nuclear weapon in your hands, you think before you use it.”
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