The danger is that private banks in other large economies in the world would be incentivized to develop an alternative system for inter-bank communication that would not be susceptible to America’s…
On Saturday, the European Union, the United Kingdom, and the United States agreed to cut off several Russian banks from SWIFT, the Society for Worldwide Interbank Financial Telecommunication. Calls continue to extend the ban to all Russian banks. That has been referred to as the last, most devastating of all sanctions. We need to be careful, however, lest the potential for devastation turn out to be to the United States. SWIFT is an association of private banks, headquartered in Belgium. Its function is to provide the communication system between over 10,000 banks worldwide. America has, in the past, convinced the member banks to use SWIFT as a diplomatic tool — most notably, in 2012 as a way of pressuring Iran over its nuclear program. Saturday’s announcement was to do the same for Russia’s top 10 commercial banks. This step, however, and going beyond those 10 to cut off all of Russia’s financial sector from SWIFT, could hasten an economic catastrophe in America, with no additional pressure on Russia. The Russian Central Bank has already been sanctioned: it cannot draw on its assets anywhere outside of Russia. It is doubtful any additional pressure will result from cutting off SWIFT for all Russian banks. If we deny SWIFT to Russian banks whether complicit with their government or not, a nascent movement away from the U.S. dollar as the international currency would be accelerated.
