LAST NIGHT, THE EU outlined a further package of sanctions against the Russian state as well as senior diplomats and business people.
Commision President Ursula von der Leyen said the sanctions show “how united the EU is” but there has been some level of disagreement over one aspect.
Excluding Russia from Swift, the international bank transaction system, was one option on the table but that stick hasn’t been reached for yet.
Ukraine’s Foreign Affairs Minister had been clear in his view, saying prior to the EU decision that anyone against removing Russia from Swift will have “the blood of innocent Ukrainian men, women and children on their hands”.
Minister for European Affairs Thomas Byrne told RTÉ today that Ireland supports such a measure but others, such as Germany, have argued that some sanctions should be kept in reserve.
Others are unsure. As he announced his country’s sanctions on Russia, US President Joe Biden said that removing Russia from Swift was “not the position” right now.
Booting Russia from Swift is arguably among the most severe among economic sanctions possible.
You’re likely to hear a lot about it over the next while, so what is Swift all about?
What is Swift?
Swift is actually an acronym that stands for the Society for Worldwide Interbank Financial Telecommunication.
It’s essentially a messaging system developed in the 1970s to replace Telex machines.
It only sends specific kinds of messages to allow banks to communicate securely and to make international payments. It’s therefore a crucial part of international trade.
Who owns Swift?
No one actually owns it as it’s made up of a cooperative of banks and proclaims to be politically neutral.
More than 11,000 financial institutions in over 200 countries use Swift, making it the backbone of the international financial transfer system.
By some estimates, Russia is the second-largest country after the United States in terms of the number of users, with some 300 Russian financial institutions belonging to the system.
More than half of Russia’s financial institutions are members of Swift.
Could Russia be booted from Swift?
Even though Swift is a cooperative of global banks it is listed in Belgium, so the EU has more of a say than the US.
Swift has resisted pressure to ban certain countries before, with the US trying and failing to remove Russia in 2014
There is precedent, however.
In November 2019, Swift “suspended” access to its network by certain Iranian banks.
The move followed the imposition of sanctions on Iran by the United States and threats by then Treasury Secretary Steven Mnuchin that Swift would be targeted by US sanctions if it didn’t comply.
Iran had already been disconnected from the SWIFT network from 2012 to 2016.
As Byrne pointed out this morning, however, Iran being disconnected from the Swift didn’t stop the country selling oil.
So would it be a big problem if Russian banks were locked out of it?
It would certainly create big problems for them but there is dispute over whether it could also create collateral damage for other countries.
Cutting Russian banks from Swift wouldn’t stop them being able to transfer money but it would certainly have a large impact.
Biden has argued that US sanctions have already targeted large State-owned Russian banks Sberbank and VTB and that this, combined with other sanctions, have achieved the same result.
This is an argument that Taoiseach Micheál Martin made to reporters in Brussels this morning too.
“People have different perspectives on the efficacy and the value of Swift in itself, so I don’t think we should get singularly focused on Swift because the sanctions themselves hit hard in the industrial base and will hurt the Russian economy,” he said.
What would Russian banks do?
If they were removed from Swift, they could go back to using older systems or they could increase the use of their own payment systems.
SFPS, a system it designed with mostly Russian banks and banks in neighbouring countries, was launched after Visa and Mastercard cut them off in 2014.
As this detailed thread points out however, western banks would need to join that system to offset the Swift ban – something unlikely to happen.
China also has a rival to Swift called Cips and there is a sense that Russia using it could accelerate its adoption.
Guntram Wolff, director of the Brussels-based Bruegel think tank, has said “the advantages and disadvantages are debatable” to removing Russian banks from Swift.
“Operationally it would be a real headache,” he says, especially for European countries which have considerable trade with Russia, which is their single biggest supplier of natural gas.
Therein lies the rub, with European leaders also concerned about rising energy prices across the continent.
What happens next?
Despite the fresh sanctions announced by EU leaders this morning, it is unlikely that we have seen the last of the debate over measures against Russia.
At yesterday’s protest by Ukrainian people in Dublin, Swift was the number 1 sanction being pushed for and it’s likely to become a litmus test of the EU’s resolve against Russia.
As Russian forces push deeper in the country, calls for more action will likely grow.
- With reporting by © – AFP 2022
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