What is SWIFT?
SWIFT, the Society for Worldwide Interbank Financial Telecommunications, is a vast messaging network that provides secure financial transaction for banks and other financial institutions to use with ease- quickly, accurately, and securely send and receive information.
Formed by 239 banks who got together to solve the common issue of communication regarding cross border payments, from across 15 countries, SWIFT was established to improve the global financial community’s experience in moving value, while ensuring value. 1977 marked the launch of SWIFT’s service- a network for individuals and businesses to take card or electronic payments regardless of the banks the client and payee use. This soon replaced Telex technology that had been in widespread use, and become the trusted partner for all institutions across the globe, gaining 518 countries from 22 countries.
The main components of SWIFT’s original services include a messaging platform, a computer system for validation of messages and routing and a set of standards for messages that were developed to allow a common understanding of data across linguistic and system boundaries, allowing for automated transmission, receipt and processing of communication.
However, SWIFT are about continuity and change; continually investing in the platform that supports services and work to improve the industry standards. On top of this, SWITF have stated that they also innovate to create value and deliver efficiencies; introducing new products and services to remedy common problems and looking for external developments that can impact the community.
SWIFT in Regards to Russia
Following the Russia-Ukraine war, March saw SWIFT removing several Russian banks, including Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, Vnesheconombank (VEB) and VTB Bank.
A further 3 banks, including Russia’s biggest lender, Sberbank, which accounts for more than a third of the country’s banking sector, is being sought to be excluded by The European Commission, though this is yet to be approved by EU ambassadors.
The cutting of Russia from would ensure they "are disconnected from the international financial system and harm their ability to operate globally". Russia’s former finance minister, Alexei Kudrin, has suggested being cut off from Swift could shrink Russia's economy by 5%.
While this aims to cause Russian companies to lose access to normal, instantaneous transactions provided by the platform, which would cause disruptions for its energy and agricultural exports, some nations were initially reluctant to take action due to the potential repercussions. This included the countries that were owed money by Russia, needing to arrange alternative ways to be paid, along with fears of the impact to the global banking system, however there is a lack of evidence for this yet.
When it annexed Crimea, Russia was threatened with a SWIFT expulsion, however Russia had stated that the move would be tantamount to a declaration of war. Whilst the expulsion did not go ahead, the threat was enough to prompt a reaction from Russia. They developed their own cross border transfer system called the System for Transfer of Financial Messages (SPFS) as a SWIFT alternative. While few foreign countries use it, India is reportedly considering a Russian proposal to use SPFS for payments in roubles – the monetary unit of Russia
References/Further Reading
‘SWIFT History’, Official SWIFT website, [website],<www.swift.com/about-us/history#milestone_0>, accessed 10 May 2022
R.Hotten, ‘Ukraine conflict: What is Swift and why is banning Russia so significant?’,BBC News,[website], 5 May 2022,<www.bbc.co.uk/news/business-60521822>accessed 10 May 2022
S.Seth, ‘How the SWIFT system works’, [website], 14 March 2022,<www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp>,accessed 10 May 2022