Cutting Russia off from the world’s largest financial messaging network is perhaps the strongest sanction yet in response to Russia’s invasion of Ukraine. But it could also have massive implications worldwide, impacting the EU and confidence in the US dollar.
The United States and its NATO allies have rolled out an unprecedented number of sanctions against Russia as punishment for its invasion last week of Ukraine, including banning exports of cutting-edge technology to Russia. One measure that Ukraine and some of its allies pleaded for is to cut Russia off from SWIFT, the world’s largest financial transaction network. It’s an option that would sever Russia from most international banking transactions, and potentially cripple its economy for a time. On Saturday, the US and its allies moved forward with plans to do just that. «We commit to ensuring that selected Russian banks are removed from the SWIFT messaging system,» the leaders of the European Commission, France, Germany, Italy, the UK, Canada, and the US said in a joint statement. «This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally.» SWIFT (the Society of Worldwide Interbank Financial Telecommunications) is a financial messaging network used by more than 11,000 financial institutions in 209 countries. Overseen by the G10 central banks, the SWIFT payment network uses standardized, secure codes that allow financial institutions to send and receive information, such as instructions for transferring money across borders. The SWIFT network is critical for cross-border trading, as it enables businesses in one country to guarantee payment in another country. For example, an EU business buying Russian products must use SWIFT to transfer funds from a local bank to the Russian vendor’s bank account using SWIFT’s banking codes. Once Russia is unplugged from the network, its government and businesses would no longer be able to receive payment for goods and services unless Russia establishes secondary measures. Forty percent of Russia’s revenue from oil and gas sales go through the SWIFT network, according to Aseem Prakash, co-founder and Global Futurist at the Center for Innovating the Future, an advisory firm based in Toronto. “The more [the] US weaponizes its currency…or cuts countries off of SWIFT, the more countries will be forced to create or find alternatives. It is already happening. And, most likely, Russia would have looked at those options,” Prakash said before the Saturday move was announced. The ramifications might be felt quickly. On Saturday night, an MSNBC reporter tweeted that he had been asked to pay his hotel bill in Moscow immediately. «My hotel in Moscow asked me to settle the bill early because they aren’t sure if credit cards are going to work once SWIFT sanctions kick in.» Using the global financial network as a sanctions weapon could undermine confidence in the US dollar and SWIFT as an apolitical network. That might accelerate the creation of alternatives such as trading in local currencies, using cryptocurrency, and forming new bilateral free trade agreements, Prakash said.
