What is Swift, and why is it called the "nuclear" option for Russian sanctions?

What is Swift, and why is it called the "nuclear" option for Russian sanctions?

As the Western allies impose tougher economic sanctions on Russia for its invasion of Ukraine, the latter goal includes. Russia's access to the Swift regime.

SWIFT system is interbank Financial communication; it is a messaging system established in 1973 and allows financial companies to send money to each other.

The Belgium-based cooperative is used by more than 11,000 banks and financial institutions in more than 200 countries and regions, including Russia. It handles 42 million messages per day, facilitating trillions of dollars worth of transactions. According to the Financial Times, Russia accounted for 1.5% of Swift's transactions in 2020.

The White House declared that the US will disconnect some Russian banks from the SWIFT system in partnership with the European Commission, France, Germany, Italy, the United Kingdom, and Canada and "will impose restrictive measures that prevent the Russian Central Bank from spreading its international reserves in ways that undermine the impact of our sanctions."

Ukrainian Foreign Minister Dmytro Kuleba has repeatedly called for Russia to be excluded from the network due to its aggression against Ukraine.

"Anyone who now doubts whether Russia should be banned from Swift should understand that the hands of innocent Ukrainian people will be on their hands," he wrote on Twitter on Thursday in the wake of the Russian invasion.

Some experts believe that punishing banks the way the United States and its allies have done so far is an effective way to freeze Russian assets. If there is no money to move it around, the messaging system becomes moot.

Also, European countries are likely to experience a negative impact on their economies from SWIFT sanctions. Germany, in particular, was dismissive due to its dependence on Russian oil and gas supplies.

It is difficult to expect the full consequences of such a punishment, and it is not clear how many Russian banks have been affected. A blanket ban on Russia from the SWIFT system, which uses the dollar as a reserve currency, could weaken the dollar as a reserve currency and thus affect the global economic dominance of the United States.

For days, world leaders discussed what French Finance Minister Bruno Le Maire was reported to have called a "financial nuclear weapon" on Friday.

In a statement on Friday, European Union finance ministers said that "all options are on the table" as they consider further financial sanctions against Russia. On Thursday, President Joe Biden said sanctions against Russian banks could have "more consequences than Swift," though he also noted, "it's always an option."

On Saturday, before the White House announced the separation of "select" Russian banks from the Swift system, Ukrainian President Volodymyr Zelensky indicated in a letter that Western countries had reached an agreement on Swift's sanctions.

"For Russia, it would mean alienating it [from] normal financial civilization," he said. "This is a major diplomatic victory. Russia will incur billions and billions of financial losses - the price of the invasion."

In a Facebook post earlier Saturday, Kuleba said the official decision had not yet been taken but that "technical preparation for the decision and the implementation of this punishment has already begun."

The disruption to the SWIFT system will make it more difficult for Russian entities to process transactions and do business outside their borders. Russia has a messaging system that it could use with China, although it wouldn't be easy to switch from SWIFT.