Ukraine Wants to Ban Russia From SWIFT. WTF Is SWIFT?

Leading up to and now during Russia’s invasion of Ukraine, a range of pundits, diplomats, and world leaders have been calling for sanctions to devastate Russia’s economy. There have increasingly been calls for Russia to be expelled from SWIFT―but what is SWIFT?

SWIFT, short for the Society for Worldwide Interbank Financial Telecommunications, is a Belgian member-run cooperative used by some 11,000 financial institutions and companies across 200 countries that facilitates trillions of dollars worth of financial transactions. Over 42 million messages are sent each day, allowing entities to communicate with each other and quickly and securely settle financial transactions. Disrupting this system, then, would bring Russia’s economy to a grinding halt.

"It will just require a lot of manual labor where you'll have people calling each other or using Telex machines to communicate settlement details to each other,” said George Pearkes, Global Macro Strategist at Bespoke Investment Group. "A modern financialized economy has extremely large numbers of these sorts of messages moving back and forth because the number of payments are very large. So if you have to have two human beings sitting down agreeing on all the details over some other form of communication manually, it slows everything to a crawl.”

Dmytro Kuleba, Ukraine's minister of foreign affairs, called for a ban after Russia began bombing Ukrainian cities: "Everyone who now doubts whether Russia should be banned from SWIFT has to understand that the blood of innocent Ukrainian men, women and children will be on their hands too." SWIFT, however, sees itself as a neutral utility and won’t cut a country out unless forced to.

"SWIFT is a neutral global cooperative set up and operated for the collective benefit of its community," the organization said in a statement Wednesday. "Any decision to impose sanctions on countries or individual entities rests solely with the competent government bodies and applicable legislators," it added.

The only country SWIFT has cut off before is Iran, which it did twice. In 2012, SWIFT resisted calls from the US and EU to cut off Iran until an EU Council decision forced the messaging service to expel dozens of Iranian financial institutions targeted by EU sanctions. SWIFT welcomed Iran back into the fold in 2016 before expelling it shortly thereafter.

On Nov. 2, 2018, after the United States reimposed sanctions on Iran, US Treasury Secretary Steve Mnuchin told reporters that SWIFT was "no different than any other entity" and must comply with Washington's sanctions "to avoid sanctions exposure." Iran was cut off three days later and said in a statement at the time that to preserve its neutrality and the global financial system, it was complying with the sanctions.

As the invasion progresses, leaders are split on whether to expel Russia from SWIFT―and for good reason. This is not the first time cutting Russia out has been considered―the idea was first floated in 2014 after Russia invaded and annexed Crimea, but Russia claimed it would retaliate. And complicating matters even further is that as The Economist pointed out in December, because Russia is “twice the combined size of any economy America has ever embargoed” in addition to the fact that it’s the EU’s fifth largest trading partner, sits on $56 billion worth of debt owed to European banks, 35 percent of Europe’s gas, and $350 billion worth of EU assets, the spillover effects would be an order of magnitude greater than anything resulting from Iran’s expulsion.

Last week―before Russia's invasion, mind you―when asked during a White House press conference if removing Russia from SWIFT was part of the sanctions package, Deputy National Security Advisor Daleep Singh said there were "other severe measures we can take that our Allies and partners are ready to take in lockstep with us, and that don’t have the same spillover effects.” The day after Russia’s invasion, President Biden announced a new set of sanctions that would "impose severe costs on the Russian economy, both immediately and over time.” No SWIFT ban was announced.

It's unlikely that one will be announced given the spillover effects, which seem to be fueling division among European leaders as well as deterring the United States from twisting SWIFT's arm again. There have also been concerns, as laid out by Protocol, that such a move may further incentivize wider adoption of alternatives to SWIFT that don’t deal in dollars and undermine it as a reserve currency. But as one professor admits in the piece, there’s essentially no evidence this is happening anywhere. 

"Yeah you can move away from systems that are part of the dollar's ubiquity and supremacy in global trade and global financial markets. But it's not something where you can just flip a switch and it changes, it's going to take a lot of time and effort and energy,” Pearkes told Motherboard. “In the short term, cutting Russia off from SWIFT or cutting Russia off from correspondent dollar banks has, in principle, the same effect, which is that you just massively slow down the amount of payments that go through.