How SWIFT Sanctions May (Or May Not) Hurt Russia – In response to Russia’s invasion of Ukraine, the United States and European Union responded with a series of economic sanctions directed towards Russian banks and oligarchs. Perhaps the most notable of the economic sanctions implemented last week was a decision to cut off several major Russian banks from the SWIFT international payment system.
President Joe Biden had floated the possibility of cutting Russian banks off from SWIFT before the invasion, but it did not serve as the kind of effective deterrent he had hoped. As peace talks begin between Russia and Ukraine, the SWIFT sanctions could have a continued and substantial impact on the Russian economy.
SWIFT Sanctions Explained
SWIFT stands for the Society of Worldwide Interbank Financial Telecommunication. It is an international secure platform used by financial institutions to exchange information about global transactions, including the transfer of money.
SWIFT doesn’t technically move money between banks, but it does serve as a medium for banks to verify information about transactions that are made. It is a secure financial messaging system that is used by over 11,000 banks across 200 different countries.
The system is based in Belgium and is overseen by the central banks of eleven major economies. These are Germany, France, Canada, the United States, the United Kingdom, Switzerland, Sweden, the Netherlands, Japan, Belgium, and Italy.
Without SWIFT, Russia’s ability to make international transactions won’t be blocked entirely. The process will, however, become more complicated.
How They Could Hurt Russia
The decision to cut Russia off from SWIFT was designed not just to deter Russia from invading Ukraine in the first place – which apparently did not work – but also to make it harder for Russia to use its financial resources to facilitate its invasion.
The European Union’s President of the European Commission, Ursula von der Leyen, said on Monday that the sanctions will stop Russia from using its “war chest.”
“This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally,” von der Leyen said in a statement on Monday.
The “war chest” comments from Europe were directed towards Russia’s large reserves of international currency.
Since the annexation of Crimea in 2014, which prompted new sanctions from major Western economies, the Kremlin worked to create a “fortress economy” that can better withstand economic sanctions.
With an economy worth $1.5 trillion – the 11th biggest in the world – Russia is likely to be hit hard by these new sanctions. On Thursday, the Russian central bank said that it would intervene in currency markets to prop up the ruble.
Russia has $630 billion in Russian reserves – a substantially larger sum of foreign currency than most other major economies. That money, however, is only useful to the Kremlin if it is accessible. Sanctions have so far made it difficult for Russia to access those funds, but not impossible.
Kim Manchester, the owner of a company that provides financial intelligence programs to major global institutions, said that the move is a “dagger in the heart of Russian banks.”
She added that the Biden administration has remained selective in its economic sanctions so far, leaving room to tighten the sanctions further if need be.
“It is a creeping barrage,” she said.
Not Every Bank Will Be Affected
In a statement, SWIFT confirmed that they would comply with the new sanctions.
“We are engaging with European authorities to understand the details of the entities that will be subject to the new measures and we are preparing to comply upon legal instruction,” the statement reads.
Not every bank, however, will be removed from SWIFT.
While the sanctions are likely to cause problems for the Russians, the fact that not all banks will be affected by the decision – in an effort to preserve some relationships between European and Russian banks and to minimize a negative impact on Western economies – could result in “nesting.”
This is a process whereby Russian entities begin working with non-sanctioned banks to maintain access to the global financial system.
The Russian “fortress economy” is about to be put to the test.
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and report on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society.
March 1, 2022 at 2:14 am
Nah, sanctions hurled at Russia amount to an act like splashing water at a duck.Or chucking sandwiches at a horse.
Russia is a massive country with massive reserves of natural resources like titanium ore, natural gas and oil.
Russia could easily hurt US by banning all Boeing airliners from landing at Russian airports or even flying through its airspace.
RESULT – airlines dumping and avoiding Boeing like the plague. Boeing shareholders, employees and congressmen will curse Biden like a leprosed outcast.
March 1, 2022 at 6:50 am
Russia was preparing and officially declared that it was ready for absolutely everything. Apparently, the West will hurt itself much more.
March 1, 2022 at 11:56 am
Sanctions against Russia will give Russians open licence or legitimacy to wage full cyber warfare against the sanctions masters.
Let’s see which hurt most – sanctions or cyber warfare attacks.
Cyber attacks cover the whole gamut: satellites, power stations, ATM machines, banks, clinics, sports stadiums, shops, Walmarts, restaurants,trains, buses, water plants, sewage plants, power generators, even condom dispensing machines.
March 2, 2022 at 12:09 am
Sanctions will take our world back to pre-1914 days, when one power with its supporters were eyeball to eyeball with another power and it’s gang. The outcome was a ‘war to end all wars’.
Biden certainly has never thought of that, and the coming outcome could really be the war to end all future wars.
March 2, 2022 at 8:09 am
Sanctions cut both ways; but Biden is unaware of this risk or negative consequence.
Biden is so confident that sanctions will kill Russia’s economy that he just can’t fathom what russia can do to vulnerable US companies like McDonald’s and coca-cola, Pepsi and pizza hut.
These companies were (still are) responsible for the famous ‘diabetes belt’ in US and virtually being guilty of the same thing in other countries, but now sanctions by Biden very curiously will spell the death knell for these US companies that have long harmed innocent humans.
Could be described as an ‘own goal’ by Biden ! Way to go, babe.
March 2, 2022 at 1:22 pm
I feel very sorry for both the Russian people and the Ukrainian people – stuck in the middle of this and subject to the whim of an egomaniacal ex-KGB thug who doesnt know his time should have been over years ago. Surrounded by old guard “yes men” oligarchs. It is sad to see cousins, brothers and sisters forced to fight each other over the border for his fragile ego. It is also sad to see Russian trolls out in force on the comment boards. I speak to the Russian people all the time. I know the truth as do they.
March 2, 2022 at 9:54 pm
Theese ridiculous sanctions will boomerang onto our economy in America and W. Europe. Anyone tell you otherwise is liar or complete fool. Gas is almost at $5 gallon. Our grocery bill is significantly larger. Everything is getting more expensive. Joe Biden and his Democrats plus the neocon establishment fool in GOP don’t care about this. They are millionaires or richer. How about your family?
March 3, 2022 at 6:38 am
Your article has a fatal flaw. SWIFT is being challenged by a new banking system that China along with India, Turkey and Russia are promoting. It is being used to replace the American Dollar. This just plays right into their hands. China will now exchange the money for over 40% of the World’s Population. They are playing chess we are playing checkers