After Russian President Vladimir Putin launched a “special military operation” and launched an invasion of Ukraine on Thursday, February 24, President Biden denounced his actions by announcing new sanctions against Russia the same day. The sanctions have been met with mixed reviews, especially because they did not include Russia’s expulsion from the SWIFT financial system. So what exactly is SWIFT banking, and why is it creating Russian sanctions after the country complicated its Ukraine operation? Here’s what you need to know.
In case you do not know, international sanctions are political and economic decisions taken by other countries or multilateral and regional organizations for the purpose of protecting national security interests, international law, and more. In a speech from the White House, President Biden revealed that the sanctions “will put new limits on what can be exported to Russia. This is going to impose serious costs on the Russian economy, both immediately and over time.” Biden also called Putin’s actions “offensive” because Russia “will face the consequences.”
The sanctions target two large Russian banks called VTB and Sberbank in an attempt to financially stunt the country, some of the leading Russian elite, and more. However, the choice to let Russia remain as part of the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, left more than a few scratching their heads, due to the even greater impact the expulsion could have on the country’s economy.
So why would excluding Russia from SWIFT be such a big game, and what could happen if these sanctions are eventually implemented? Let’s break it down.
What is SWIFT Banking?
According to NBC News, SWIFT Banking is a “co-operative of financial institutions” established in 1973 that operates out of Belgium. SWIFT oversees more than 11,000 financial institutions in more than 200 countries and territories, and is overseen by the National Bank of Belgium, as well as other major banks, including the US Federal Reserve System, the European Central Bank, the Bank of England, And many more are included. ,
But SWIFT isn’t your average bank – it acts as a “secure messaging system” by alerting banks when a transaction is actually taking place. In an interview with NPR, Alexandra Wacroix, executive director of the Davis Center for Russian and Eurasian Studies at Harvard University, explained that Swift’s job is not to “transfer money,” but to transfer “information about money.”
According to Bloomberg, Swift reportedly received an average of 42 million messages a day in 2021.
What if Russia is kicked out of Swift?
According to NBC News, removing Russia from SWIFT would cut the country off “most international financial transactions”. Most notably, Russia will not be able to profit from oil and gas production, which makes up 40% of the country’s profits, and so the expulsion will come as both an immediate hit and a long-term hit to the country’s economy.
NBC News claims that getting Russia out of Swift “will be one of the most difficult financial steps they can take.”
Why was Swift kept out of Biden’s sanctions?
Asked by reporters why Russia would be allowed to remain part of SWIFT, President Biden replied, “The sanctions we have put in place exceed SWIFT. The sanctions we have put in place are greater than any that have been done so far. Because of the restrictions we have imposed, 2/3 of the world has joined us. Those are deep restrictions. ,
Although he was very firm in his decision not to remove Russia from SWIFT, Biden also said that the possibility of imposing even harsher economic sanctions is not yet completely eliminated. “Let’s talk in another month to see if [the sanctions] are working,” Biden said.
