What is Swift and Why Does It Matter in the Ukraine-Russia Crisis?

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What is SWIFT?
The Society for Worldwide Interbank Financial Telecommunication, aka SWIFT, bills itself as “the global provider of secure financial messaging services.”

It isn’t a bank — it doesn’t manage accounts for individuals or banks, and it doesn’t hold any third-party funds. SWIFT simply acts as the messaging system for international payments, connecting more than 11,000 financial institutions worldwide, including the US Federal Reserve System, the Bank of England and the European Central Bank.

The Washington Post has described SWIFT as “the Gmail of global banking.”

Created in Belgium in 1973, the organization runs its own financial messaging network called SWIFTnet, which provides secure, standardized communication services and software to banks, brokers and investment firms. According to SWIFT, it transmitted 42 million messages a day last year.

What did the US and EU decide about Russia and SWIFT?
In their joint statement, the US, EU and their allies declared they would be removing “selected Russian banks” from the SWIFT financial messaging system.

“As Russian forces unleash their assault on Kyiv and other Ukrainian cities, we are resolved to continue imposing costs on Russia that will further isolate Russia from the international financial system and our economies,” the coalition said.

On Monday, South Korea announced it would join in the move to block certain Russian banks from the international payments system, but no specifics have been released as to which Russian banks will be banned.

How will Russia be affected by its removal from SWIFT?
According to the Russian National SWIFT Association, about 300 banks and financial institutions in the country belong to the SWIFT network, the second-largest group of users outside of the US. More than half of all credit organizations in Russia also belong to SWIFT.

Removal from the cooperative network will prevent an institution from making or receiving international payments using SWIFT. A 2021 analysis from the Carnegie Moscow Center estimates that the complete removal of all Russian banks from SWIFT would cause Russia’s gross domestic product to fall by 5%.

When Iran was ousted from SWIFT in 2012, the country lost 30% of its foreign trade, according to the BBC.

But the coalition hasn’t indicated which, or how many banks are being targeted. In addition, SWIFT isn’t Russia’s only option. China is growing its Cross-Border Interbank Payment System, a global payment messaging system that had about 80 financial institutions as members at the end of 2021.

At least 23 Russian banks use CIPS and more could easily convert, according to Asia Markets.

Nikolay Zhuravlev, vice speaker of Russia’s Federation Council, warned that the removal of Russian banks from SWIFT would be detrimental to Europeans. 

“If Russia is disconnected from SWIFT, then we will not receive [foreign] currency,” Zhuravlev said in an interview with state-owned news agency TASS. “But buyers, European countries in the first place, will not receive our goods — oil, gas, metals and other important components of their imports. Do they need it? I am not sure.”

How could the US and other countries be affected by Russia’s removal from SWIFT?
The biggest concern for the US in banning Russian banks is a weakening of the American dollar: Since 2014, Russia has been pursuing a “de-dollarization” plan — an effort to move away from the US dollar for international trading — although the vast majority of its oil sales are still in dollars, according to S&P Global.

The expulsion of Russia could weaken the dollar internationally, and negatively affect US energy exports.

Germany and Italy are two of the European countries that initially resisted removing Russian banks from SWIFT, mainly due to their reliance on Russian oil and gas. Other countries, like the Netherlands that also trade heavily with Russia will be affected by the ban.

The coalition’s intent with banning selected Russian banks is to maximize the negative impact on Russia while minimizing the blowback on Europe, according to the BBC.