Russia has been cut off from the global payment systems as part of the sanctions imposed by western nations post the country’s attack on Ukraine. As part of the sanctions, countries including the United States, France, Germany, Italy, the United Kingdom, Canada have voted to block several Russian banks from the SWIFT payment system. Experts suggest that this can be a blow to the Russian economy as it will make it harder for Russian companies to do international business. Wonder what exactly SWIFT is and how its accessibility can impact Russia.
What is SWIFT
The term SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. It is a system that helps in huge financial transactions and payments between banks around the world. It is worth noting that it is not a bank or payment provider, it is a messaging network service provider through which cross-border payments are initiated.
In simple terms, the SWIFT network can be considered as a carrier of messages that contain the payment instruction between banks or companies that are involved in a transaction. It can be considered as an SMS service provider for major financial institutions.
The SWIFT system is used by more than 11,000 financial institutions in over 200 countries and territories. Under the system, each organisation is provided a unique code of 8 to 11 characters. The code needs to be verified by both sender and receiver for the transaction to conclude. The system provides a safe and secure passage to conduct huge international transactions. From the Reserve Bank of India to the Federal Reserve System of the US, every major bank in the world uses the SWIFT system.
How SWIFT ban can impact Russia
As all major financial institutions globally use the SWIFT system, a ban on Russian banks will stop all inflow of money in the country. This can hamper the international trade Russia has with other countries. The ban can pull Russia back in terms of defence, technology, automotive, healthcare, education and more.
The country will be forced to self-sustain as it won’t be able to import anything due to lack of payment solution. An example of how SWIFT ban can hurt a country can be seen in Iran.
Iran was banned from the SWIFT system in 2012 due to its nuclear program. The country has lost almost half of its oil export revenues since then. It has also recorded a major slump in international trade.