SWIFT sanctions on Russia: Things you need to know

What is SWIFT?

SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication, is a Belgium based secure messaging platform that facilitates cross-border payments. The member-owned cooperative connects more than 11,000 banks, financial institutions and corporations in more than 200 countries and territories around the world. The National Bank of Belgium (NBB) acts as the lead overseer and is supported by the G-10 central banks. 

Impact of SWIFT

In 2021, SWIFT recorded an average of 42 million FIN messages per day. Average daily traffic grew by +11.4% versus the same period in 2020. Some experts speculate that without SWIFT or something identical, each payment would take a bank clerk a few hours to process, SWIFT might help save up to $100 per transaction. This would mean that SWIFT adds the value of around $4 billion per day or USD $1 trillion per year to the world economy.

Past Sanctions on SWIFT

• North Korea is already out of the SWIFT platform.

• In March 2012, SWIFT authorities agreed to not forward messages to any Iranian bank or individual that had been blacklisted by the EU. As a result, Iran's oil exports plunged from around 2.5 million barrels per day (bpd) in 2011 to around one million bpd by 2014. Its total trade sunk about 30%.

The "partial" ban on Russia

VTB Bank PJSC , Bank Rossiya  Bank Otkritie, Novikombank, Promsvyazbank PJSC, Sovcombank PJSC and VEB.RF are the seven banks that face a ban. Notable absentees from the SWIFT ban are Russia's biggest lender Sberbank PJSC and Gazprombank, partially owned by Russian gas giant Gazprom.

The implications of the ban

• Russia has the second largest number of users of SWIFT.

• Will add to the hassles of international financial institutions and customers that have been dealing with these banks. 

• Cross-border transactions for exports and imports made through these banks will most likely stop 

• Will mostly impact the lower value payments, such as those in small business supply chains since Swift makes payment processing so easy and inexpensive. 

What if the ban is extended to all Russian banks?

• Russian importers may default on payments on a large scale, which will hurt Europe and others that trade with Moscow. 

• Foreign banks would find it extremely hard to recover what is owed to the Russian-based entities.

• Russia may start to trade in currencies other than the dollar or the euro or the pound for some time. It may get into barter deals with trade partners.

Can SWIFT be bypassed?

• Russia has already developed an alternative: System for Transfer of Financial Messages (SPFS), which will allow some continuity in international exchange. This is currently used by a handful of international banks in Germany and Switzerland linked to Russian banks.

• They could also use the Chinese CIPS network.

Encrypted messaging services like Telegram can also be used to instruct the necessary transactions.