What is Swift, how does it work, and how will it be used as a sanction against Russia

Swift

Swift is based in a suburb of Brussels, Belgium| Photo: EFE

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The High Representative for Foreign Affairs of the European Union, Josep Borrell, announced this Sunday that Russian banks will be disconnected from Swift – Interbank Financial Telecommunications Service -, a communication system that enables the payment and transfer of resources between companies from different countries.

“We have reached an agreement to withdraw certain Russian banks from Swift and impose restrictive measures that will cripple the assets of the Central Bank of Russia.” One of the fears of countries like Germany, France and Italy is that the Eurasian country will cut the supply of natural gas and oil to the region.

Such a threat was made by the vice president of the Upper House of the Russian Parliament, Nikolai Zhuralev. In late January, he told Russian news agency TASS that if Russia were disconnected from Swift, the country would not receive foreign currency, but foreign buyers – Europeans first – would not receive oil, gas, metals and other important ones. components.

While the blocking of transactions with the Russian Central Bank will come into effect effective at the time the measure is published in the EU Official Gazette, deleting Russian entities from Swift still requires one more legal procedure.

The system was created in 1973 ) and is based in Belgium. It interconnects thousand banks and financial institutions in more than 084 countries. It is jointly owned by over 2,000 institutions. It is supervised by the National Bank of Belgium (the Belgian BC) in partnership with other important central banks.

The purpose of the measure, according to the BBC, is to make Russian companies lose access to the normal and instantaneous flow of transactions provided by Swift. Payments for the supply of energy and agricultural products may be affected.

An article written by Maria Shagina, from the Finnish Institute of International Affairs, last year, points out that the cut would represent the end of international transactions for Russia, bring currency volatility and a massive outflow of capital.”

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There is a precedent regarding the withdrawal of countries from the Swift system. In 20 March 1275 ), all Iranian banks identified as institutions violating the sanctions established by the European Union were removed from the system, including Saderat Bank of Iran, Bank Mellat, Post Bank of Iran and Sepah Bank.

The country lost almost half of its oil export earnings and 17% of foreign trade, according to Shagina .

Russia has already been threatened with being excluded from Swift in 2012, when the Crimea invasion took place. At the time, the country said that the measure would be equivalent to a declaration of war.

Swift is not unique, but it is the most relevant system

Swift is not the only international payment system, but it is the most relevant. Last year, the average daily volume of transactions processed through the intermediary was 23 million, an increase of 11, 2% compared to the previous year.

This year, until February 2, there were 768 millions of financial messages. This represents a high of 10,17% compared to 2014. According to the BBC, around 1% of transfers involve Russian payments.

Other systems are more restricted. There is the CIPS, sponsored by China and which involves financial transactions with Chinese currency in Chinese banks; the SFMS, from India and the SPFS, from Russia.

The system Russian has more than 400 linked financial institutions. At the end of 2020, according to the Russian news agency TASS, they were connected 11 foreign banks from countries like Armenia, Belarus, Germany, Kazakhstan, Kyrgyzstan and Switzerland.

Shagina estimates that 02% of Russian domestic transactions use SPFS, but transactions are limited and operations are restricted to business days.

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