Will The World Cut Russia Out Of SWIFT, And What Would Happen If It Did?

The Times newspaper reports that barring Russia from the SWIFT international payments system would stop all trade with the West and reduce its GDP by 5 percent.

What is SWIFT and how does it work?

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a Belgium-based secure messaging system which is used to make international cross-border payments. In 2020, it was estimated 38 million transactions a day were made by SWIFT.

“SWIFT is the global payment and transaction system. It is unique and used by all international banks. A ban from using SWIFT cuts all financing and payment options for international payments. Global banking and corporate exposure to Russia is around US$100 billion. Cutting SWIFT access would block those assets and hurt mostly industrial and energy groups in Europe,” Daniel Lacalle, chief economist at asset management firm Tressis Gestion, said.

Marc Ostwald, a financial commentator, said: “The way the SWIFT system works is it basically connects about 11,000 financial institutions worldwide. It's used in 200 countries, so it is a major part of the global payment system.”

He said the impact of banning Russia would be “quite dramatic” and he said Iran lost about 30 percent of its trade when 18 Iranian banks were banned from SWIFT as a result of US sanctions.

But he added that there was no consensus on ejecting Russia from SWIFT as certain countries, for example Hungary, depended on Russia for their energy supplies.

He said there were divisions within the EU and between Germany and the UK/US.

“Germany and Italy aren't interested simply because of the sheer volume of trade that they do with Russia in every area. And they obviously have a lot of credit lines for corporate entities which supply for trade,” said Ostwald.

German Foreign Minister Annalena Baerbock promised to isolate Russia internationally but she pointed out that banning it from SWIFT would make it impossible for people to send money to relations in Russia.

France's Finance Minister Bruno Le Maire also said that the idea of booting Russia out of SWIFT "is the very last resort ... but this is one of the options that remains on the table."

Austria's Chancellor, Karl Nehammer, said he supported the idea of excluding Russia from SWIFT but only if there were unity within the European Union.

Ostwald said: “I don't know whether someone can cook up some form of compromise on it. But at the present stage, that doesn't look like it's going to be implemented by the EU.”

He said the former Polish Prime Minister Donald Tusk has heavily criticised Germany for blocking a ban on Russian SWIFT payments.

But US President Joe Biden has said excluding Russia from SWIFT is not an option at the moment because “that’s not the position the rest of Europe chooses to take.”

Russia set up an alternative to SWIFT – SPFS (System for Transfer of Financial Messages) – in 2014 – and China set one up, SIPS, the next year to ensure trade can take place between Russia and China.

“China and Russia may try to implement an alternative but it would only work with transactions between them not global ones unless international banks accepted the system. However, SWIFT may be bypassed according to some banks. There are rumours that Iran does it,” Daniel Lacalle said.