Russia’s invasion of Ukraine has triggered sanctions against the country as well as calls to sever it from the main global payments system.
Ejecting Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network could cripple Russia’s ability to trade with most of the world and deal a heavy blow to its economy.
But on Thursday, the United States and the European Union opted not to cut Russia off from SWIFT while leaving the door open to revisiting the possibility.
Al Jazeera takes a look at the payment system and its relevance to the crisis in Ukraine.
What is SWIFT and what does it do?
SWIFT is a network used by banks to send secure messages about transfers of money and other transactions.
More than 11,000 financial institutions in nearly 200 countries use SWIFT, making it the backbone of the international financial transfer system.
Who owns SWIFT?
SWIFT is a cooperative company under Belgian law. On its website, it says “it’s owned and controlled by its shareholders [financial institutions] representing approximately 3,500 firms from across the world”.
The system is overseen by the G10 central banks, as well as the European Central Bank, with its lead overseer being the National Bank of Belgium.
What is the relationship between SWIFT and Russia?
According to the Russian National SWIFT Association, Russia has the second-most users after the US, with some 300 Russian financial institutions belonging to the system.
More than half of Russia’s financial institutions are members of SWIFT.
Alicia García Herrero, chief economist for the Asia Pacific at Natixis in Hong Kong, said banning Russia from SWIFT would be a serious blow to the country.
“[It’s a big deal] since no debt or trade finance payments can be made. It is bigger than stopping EU imports of gas from Russia,” García Herrero told Al Jazeera.
What has Russia said?
Nikolay Zhuravlev, vice speaker of the Federation Council, acknowledged in January that the country’s ejection from the network was a possibility.
“SWIFT is a settlement system, it is a service. Therefore, if Russia is disconnected from SWIFT, then we will not receive [foreign] currency, but buyers, European countries in the first place, will not receive our goods – oil, gas, metals and other important components of their imports. Do they need it? I am not sure,” Zhuravlev said, according to the TASS Russian agency.
Zhuravlev also noted that while SWIFT is convenient, it is not the only way of transferring money, and a decision like suspending a country would need unanimity among members.
“SWIFT is a European company, an association which involves a lot of countries,” Zhuravlev said.
Is Russia’s suspension from SWIFT a credible threat?
Tactically, “the advantages and disadvantages are debatable”, Guntram Wolff, director of the Brussels-based Bruegel think-tank, told the AFP news agency.
In practical terms, being removed from SWIFT would mean Russian banks could not use it to make or receive payments with foreign financial institutions.
Western nations threatened to exclude Russia from SWIFT in 2014 following its annexation of Crimea.
But excluding such a major economy – Russia is a significant oil and gas exporter – could have significant consequences for other countries, too.
Netherlands Prime Minister Mark Rutte on Thursday acknowledged that a ban was “sensitive” for some EU countries as it would have an “enormous impact on ourselves.”
“Operationally it would be a real headache,” said Wolff, adding the impact would be especially great for European countries which do significant trade with Russia, which supplies 41 percent of the continent’s natural gas.
Herrero said excluding Russia would be costly “for bondholders, EU banks and energy importers”.
Such a ban could also spur Moscow to accelerate the development of an alternative transfer system, with China, or other countries, potentially undercutting US dominance of the financial system.
Aljazeera