This WSJ posting is meant to describe a bit about SWIFT and why it is being discussed as a lever to potentially damage the Russian economy in retaliation for the Ukraine invasion. Most readers of this space will already know what SWIFT is but the authors describe it at a high level. Readers here will know SWIFT as a bank-owned cooperative based in Belgium that delivers global financial messaging services to about 11,000 member banks.
‘Russia’s assault on Ukraine triggered a surge of calls for Western allies to completely sever Russia from the global financial system by disconnecting it from the Swift global financial messaging system. The EU, U.S., U.K. and Canada agreed late Saturday to block some Russian banks from the network, part of an enhanced package of measures that seeks to undermine Russia’s economy and finances.’
The authors go on to discuss how effective such a cutoff would be in deterring Russia’s aggression, given that there are alternatives. These include a Russian payment network which has limited foreign participation, and the Chinese system, which has substantially more cross-border participants and could be used to redirect Russian bank payments. They also discuss the potential for undermining the U.S. dollar as the primary reserve currency in the long run. The main commerce between the west and Russia is energy, which has not been threatened for cutoff anyway, given the European dependence upon natural gas from Russia. A good fast read to get an overview.
‘Besides halting a new natural gas pipeline and hurting Russia’s ability to raise debt, Western sanctions so far have blacklisted many of Russia’s biggest banks, affecting the majority of the country’s banking sectors assets. Those sanctions ban transactions with the targeted institutions, cutting off their access to U.S. dollars and financing. Western nations also announced measures to paralyze Russia’s central bank from using its more than $600 billion in currency reserves.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group