Russian banks disconnected from the SWIFT financial messaging network would hinder day-to-day operations such as currency exchange and transfers. There will be alternatives, but they will be riskier. However, for now, there is no agreement to proceed with this sanction.
In 2012, Iran stopped receiving international transfers as it used to. The European Union had stepped up financial sanctions and banned financial messaging platforms from providing services to Iranian banks that had been sanctioned over the nuclear program. Banks in that Middle Eastern country are therefore no longer able to access the international messaging system that ensures transactions, the system called SWIFT, named after the banking cooperative that owns it – Society for Worldwide Interbank Financial Communications.
“SWIFT is under Belgian law and must comply with the decision as confirmed by the government of the country where it is located. SWIFT implemented the regulatory obligation and disconnected EU-sanctioned banks.” The note appears on the website of the company that owns this international system that ensures communication between banks for international banking operations. In 2016, most Iranian banks were re-admitted to the system, after being excluded for four years. In 2018, there was a decision by SWIFT itself, without responding to European sanctions, to exclude access to Iranian banks, justifying it with the need to ensure financial stability.
Above all, the issue is the imposition of a measure that prevents international banking operations and that replaced the Telex network in the 1970s, as the company itself repeats several times on its website. While national systems can carry out transactions from one bank to another without SWIFT, those that cross borders are not. At least, it would be difficult to make them like so far.
There are requests from several geographies to prevent Russia from being denied access to SWIFT, the system that results from a cooperative between global banks. It was, by the way, a question asked several times to Joe Biden, US president, at the press conference in which he announced sanctions such as the freezing of Russian bank assets, but not the exclusion of the Russian Federation from the international messaging system. Biden argues that the impediments already placed on banks are more effective.
What is certain is that international agencies have noticed a European division with regard to this decision – because this impediment has an impact in both directions, not only on the Russian side. And there are European countries with trade with Russia that would make this position difficult. Boris Johnson, the British prime minister, has made it clear that an agreement is needed from the G7 and other groups to which he belongs.
Excluding Russia from SWIFT would prevent it from having access to the system through which messages that support most international transactions are carried out. Exchange currency, operations in foreign exchange, transactions across borders, international transfers: all this is limited if there is exclusion from the system because there is no longer direct communication between financial institutions. Banks have a SWIFT code (BIC) that identifies them in these transactions and gives them the security that the counterparty exists and complies with the rules. These standardized operations (the most performed, which do not require special sophistication) are those that are performed there.
Without this system, explains a source from the banking sector, banks can only make international transactions, for example via checks, and the use of this means of payment at a global level takes weeks. Furthermore, the counterparty risk is uncertain, since in SWIFT there is always a sender and receiver of the message, which ensures that what was sent by one bank is received by the other. There will be alternatives, but they will be riskier and less comprehensive – and they always run the risk of being sanctioned if they use the SWIFT banking system. Despite suffering a loss, Tehran managed to continue selling oil, mainly with the help of a group of countries that were opposed to sanctions.
Russia already has an internal system, and it has already been reported that it intends to expand it and that it can be used with other countries. In a world dependent on the dollar, doubts about the ability to survive without the system are high, warns the source in the banking sector.
Target even of citizens’ requests for Russian banks to discontinue this system, SWIFT is supervised by the National Bank of Belgium, but also by the central banks of the G10 and the European Central Bank.
Source: with agencies