On Saturday, Western allies moved to block certain Russian banks’ access to the SWIFT international payment system in further punishment of Moscow as it presses on with its military assault.
Al Jazeera takes a look at SWIFT and its relevance to the crisis in Ukraine.
What is SWIFT and what does it do?
SWIFT is a network used by banks to send secure messages about transfers of money and other transactions.
More than 11,000 financial institutions around the world use SWIFT, making it the backbone of the international financial transfer system.
Who owns SWIFT?
SWIFT is a cooperative company under Belgian law. On its website, it says “it’s owned and controlled by its shareholders [financial institutions] representing approximately 3,500 firms from across the world”.
The system is overseen by the G10 central banks, as well as the European Central Bank, with its lead overseer being the National Bank of Belgium.
How is Russia involved?
According to the Russian National SWIFT Association, Russia has the second-largest number of users after the US, with some 300 Russian financial institutions in the system, more than half of Russia’s financial institutions.
Alicia Garcia Herrero, chief economist for the Asia Pacific at Natixis in Hong Kong, said banning Russia from SWIFT would be a serious blow to the country.
“[It’s a big deal] since no debt or trade finance payments can be made. It is bigger than stopping EU imports of gas from Russia,” Garcia Herrero told Al Jazeera.
What has Russia said?
Nikolay Zhuravlev, vice-speaker of Russia’s Federation Council, acknowledged in January that the country’s ejection from SWIFT was a possibility.
“SWIFT is a settlement system, it is a service. Therefore, if Russia is disconnected from SWIFT, then we will not receive [foreign] currency, but buyers, European countries in the first place, will not receive our goods – oil, gas, metals and other important components of their imports. Do they need it? I am not sure,” Zhuravlev said, according to the TASS Russian agency.
Zhuravlev also noted that while SWIFT is convenient, it is not the only way of transferring money, and a decision like suspending a country would need unanimity among members.
What does the suspension mean?
Russian banks will find it harder to communicate with peers internationally, even in friendly countries such as China, slowing trade and making transactions costlier.
But the allies, who also vowed curbs on Russia’s central bank to limit its ability to support the rouble, have not yet said which banks would be targeted. That would be crucial to the measure’s impact, said sanctions and banking experts.
If the list covers the largest Russian banks, such as Sberbank SBER.MM, VTB VTBR.MM, and Gazprombank, it would be “an absolutely huge deal”, economic expert Edward Fishman wrote on Twitter, adding that the “details would matter”.
Sberbank and VTB have previously said they are prepared for any developments.
The sanctions are likely to hit the rouble hard when markets open on Monday, said Sergey Aleksashenko, a former deputy chairman of the Russian central bank who now lives in the US, leading to the disappearance of many imports to Russia.
“This is the end of a significant part of the economy,” Aleksashenko added. “Half the consumer market is going to disappear. These goods will disappear if payments can’t be made for them.”
But the impact could be blunted if the listed banks were limited to those already sanctioned and Russia’s central bank was given time to transfer assets elsewhere, said one former senior Russian banker, who spoke on condition of anonymity.
“If it is the banks that are already sanctioned, it doesn’t really make a difference. But if it is the top 30 Russian banks then that is an entirely different matter,” he said.
“It all sounds very loud and everyone is very glad, but in reality, it is a political statement.”
As an alternative to SWIFT, Russia has set up its own network, the SPFS (System for Transfer of Financial Messages).
It sent about 2 million messages in 2020, or about a fifth of Russian internal traffic, says the central bank, which aims to up this share to 30 percent in 2023.