SWIFT banking system option might be on the way against Russia after President Joe Biden announced the sanctions currently planned after attacks on Ukraine.
In response to Vladimir Putin’s decision to invade Ukraine, US President Joe Biden announced new sanctions against Russia on Thursday. He added that the multilateral measures would be more impactful than one of the toughest single measures he could pursue. The president did not explicitly suggest that the United States and its allies would impose a harsh financial penalty against Russia, such as expelling it from SWIFT, but he acknowledged that it is a possibility.
Swift banking system explained
SWIFT is a global organization of financial institutions that was founded in 1973 and is based in Belgium. The National Bank of Belgium works in collaboration with other major central banks, such as the United States Federal Reserve System and the Bank of England to oversee the organization.
SWIFT is not a typical bank, and it does not move money. Rather, it serves as a secure messaging system that links more than 11,000 financial institutions from over 200 countries and territories. When transactions are about to occur, SWIFT sends notifications to the banks. For example, American banks have their own SWIFT code for incoming wire transfers in US dollars, which is different from other countries’ SWIFT codes.
In 2021, SWIFT said that 42 million transactions every day on average take place, up 11% from the previous year. In 2020, Russia made up 1.5 percent of all transactions.
Possible effects of sanctions on Russia’s economy
US and Europe, eliminating Russia from the SWIFT payment system would be one of the harshest economic measures they could take, which would harm Russia’s economy immediately and in the long run. The plan could completely shut down Russia‘s access to most of the international financial transactions, including earnings from oil and gas production, which accounts for more than 40% of the country’s income.
In 2014, when Russia annexed Crimea and supported separatists in eastern Ukraine, several European nations and the US offered the option of cutting Russia out of the SWIFT system. The idea was condemned by Russia, who said it would be a declaration of war. However, the allies abandoned the plan.
Ukraine is a country in Eastern Europe. It is the second-largest country in Europe by size, after Russia, which borders to the east and northeast. The current population of Ukraine is 43,301,680 as of Thursday, February 24, 2022.
Russia-Ukraine conflict summary
The conflict began in February 2014, when Russia and pro-Russian forces attacked Ukraine, primarily over the status of Crimea and parts of the Donbas. The war’s major focus has been on the status of Crimea and other disputed territories that are widely regarded as part of Ukraine by international law.
Russian military buildup on Ukraine’s border has exacerbated tensions between the two countries and strained bilateral ties during 2021-22, with the United States delivering a strong message that an invasion would be met with severe consequences for Russia’s economy.
“I believe it is necessary to take a long-overdue decision, to immediately recognize the independence and sovereignty of the Donetsk People’s Republic and the Lugansk People’s Republic”
– Vladimir Putin
Analysts believe that this could be the start of a larger conflict in Ukraine, and many officials are labeling the action an assault on Ukraine’s independence.