Society for Worldwide Interbank Financial Telecommunication (SWIFT) is considered as a secure international messaging network that banks use to make payments from one country to another.
Ratcheting up sanctions following Russia's invasion of Ukraine, the United States and European Union have excluded some of the leading Russian banks from the international bank payments system SWIFT.
The Bloc has also targeted Russian President Vladimir Putin and Foreign Minister Sergei Lavrov by freezing their assets and imposing travel bans on them.
After Syrian and Belarus presidents, Putin and Lavrov are the next to face such punitive measures. Besides the US and EU, Japan has also stated that it will remove the selected Russian banks from the SWIFT messaging system.
What is the SWIFT international payment system?
Society for Worldwide Interbank Financial Telecommunication (SWIFT) is considered as a secure international messaging network that banks use to make payments from one country to another.
Founded in 1973, the Belgium-based society, is being looked at by central banks in Europe, the United States, Canada and Japan. It facilitates financial and banking institutions to wire money to each other so that the global trade could carry on easily and smoothly.
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As per reports, over 11000 banking institutions spread across 200 countries use this network to deliver secure payment orders. In 2020, about 40 million messages with instructions to send trillions of dollars were sent each day over the platform.
Since the message is delivered over the network is considered to be secure and safe, it helps the banking system honour the payment instructions swiftly.
It also ensures the financial and banking systems handle high-volume trading every day.
How does a SWIFT ban impact Russia?
It would cause a major disruption to the Russian economy. Russia cannot access the global financial markets.
Russian firms and individuals will not be able to pay for imported goods and receive payment for the exported goods. It cannot invest or borrow abroad.
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In 2012, Iranian banks were excluded from the network and Tehran had to face a drop in its oil exports.
What options do Russians have?
The financial and banking institutions in Russia can use other channels for trade like phones, messaging apps and email and process payment through banks from those countries that have not imposed sanctions.
There is a drawback that these alternatives would not be secure as SWIFT, which could lead to falling trade volumes with high costs. It must be noted that Moscow has designed and developed its own payment messaging network -- SPFS. However, tt only handles about a fifth of domestic payments.
Who would benefit from this ban?
China. Its digital currency would gain acceleration in such a situation. Chinese cross-border payment system would be hard to replace the SWIFT system in the short run, but it would get benefited in the long run.
Russia and China share cordial relations amidst most of the global powers that have condemned Russia's invasion of Ukraine, Beijing has taken Moscow's side.
On Monday, shares of Chinese payment-related companies jumped after a number of countries announced to remove selected Russian banks from the SWIFT system.
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