There is no agreement between Russia and Western countries on Ukraine yet. The US has threatened that if Russia invades Ukraine, it will face dire economic consequences. Russia has talked about finding the necessary money if the sanctions are imposed.
Tension remains high over the deployment of Russian forces on the Ukraine border. Negotiations to reduce tension have been fruitless. The US has said that if Russia attacks, it will impose economic sanctions. It has also warned that this time the sanctions will be more severe and detailed than before. One apprehension of sanctions is also related to the SWIFT network. It is feared that perhaps this time Russian banks should be banned from using this network. Although many experts are calling it an ‘extreme option’.
What is Swift network?
Swift is a messaging network. Its full name is Society for Worldwide Interbank Financial Telecommunication. Banks and other financial institutions use it to make payments outside the country. It acts as an international reciprocal payment system for banks around the world. About 11 thousand banks in 200 countries use this network.
Through this network, each member bank gets a unique international code. This is called SWIFT code or SWIFT number or Bank Identifier Code (BIC). In case of international payments, this SWIFT code identifies the particular bank. Through this, banks are able to complete the process of payment faster. Due to ease of use, security and fast speed, it facilitates in sending money from one country to another. That is why it is considered the world’s most trusted messaging system for cross-border transactions.
Whose Swift Network is it?
This network, formed in 1973, is located in Belgium. Its business is managed by a team of 25-member Board of Directors. The Central Banks of the G10 countries (Germany, France, Japan, USA, UK, Belgium, Canada, Italy, Netherlands, Switzerland and Sweden) and the European Central Bank together monitor SWIFT.
Can a country be removed from SWIFT?
SWIFT is a cooperative system of banks around the world. These include countries that are hostile to each other. In such a situation, this network calls itself politically neutral. But in November 2018, it removed some banks in Iran. SWIFT then said in a statement, “We regret the suspension of Iranian banks from our network, but we are taking this decision keeping in mind the stability of the international financial system.”
Swift took this decision under pressure from America. The US told Swift that it would have to comply with the US economic sanctions imposed on Iran. If he does not do this, he may also face US sanctions.
interests of the European Union
Trade between Russia and the European Union (EU) takes place on a large scale. Russia is the fifth largest trading partner of the EU. Europe is also dependent on Russia for its energy needs. About 35 percent of the natural gas supply to Europe comes from Russia. There is also a big investment from Europe. If the network of transactions with Russia is affected, then the EU will also be affected.
What will be Swift’s option in case of pressure?
There is a law of the European Union, Blocking statues. Under this, the European Union does not recognize any law implemented by any other country. Its purpose is to protect EU companies legally engaged in international trade or business activity from the influence of laws in force in any other country. This law also prevents EU companies from complying with economic sanctions imposed by the US.
After pulling out of the Iran nuclear deal in 2018, the US again imposed economic sanctions on Iran. After this, the EU also updated its blocking statue, so that these economic sanctions would have the least impact on EU companies doing legal business with Iran.
If the US tries to remove Russia from SWIFT, the EU may oppose it. Experts say that if Russia is pulled out of Swift, then it will find other ways. In such a situation, China’s ‘Cross Border Inter Bank Payments System’ (CIPS) can be encouraged. CIPS is a SWIFT-like network made in China.
China formed it in 2015. Its main goal behind making it is to encourage the international use of China’s currency Yuan. It lags far behind Swift in its expansion, but is growing rapidly. By July 2021, more than a thousand banks from about 100 countries had joined it. In 2020, an increase of up to 30 percent was recorded in the financial transactions done by it.
Russia also developed an alternative
After the Crimea episode, when there was talk of expelling Russia from SWIFT, it also developed its own network of financial transactions. Its name is System for Transfer of Financial Messages (SPFS). It has more than 400 banks as its members. These include banks of the countries of the former Soviet Union. According to Radio Free Europe, by the end of 2020, 20 percent of all domestic financial transactions in Russia were going through the SPFS.
Russia is a big economy. The impact of withdrawing Russian banks from SWIFT will also be huge. Experts say that if this happens, Russia will suffer a lot in the initial phase. But soon he may find alternative ways as well.