The United States and the European Union threaten Russia with the SWIFT system
The United States and the European Union threaten Russia with the SWIFT system

A group of NATO countries, including the United States, announced in a joint letter that they promised further steps to separate Russia from the global financial system.

The letter, signed by the United States, the United Kingdom, Canada and European allies, outlines further steps to isolate the Russian Central Bank. He announced the formation of a new transatlantic task force to freeze foreign assets of sanctioned individuals.

In a major upgrade, the order also prevented some Russian banks from using SWIFT, the international payment system that banks use to send money around the world.

SWIFT stands for Society for Worldwide Interbank Financial Telecommunication, a Belgium-based co-operative owned by many of the largest banks in Europe.

The organization's payment network does not exchange funds but is used to verify interbank payment orders.

Its services process approximately 42 million transactions per day in more than 200 countries.

It is difficult to predict the impact of SWIFT's dismissal on the political and military situation in Ukraine. But the move could prove painful for Russian banks and markets, which have been hit by various financial sanctions.

An article published in 2021 by the Carnegie Center think-tank in Moscow described removing SWIFT as a nuclear option that would hit Russia particularly hard.

This is largely due to the country's reliance on dollar-denominated energy exports. Author Maria Shagina writes: Cutting off money will end all international transactions and lead to currency fluctuations and massive capital inflows.

The United States increases pressure on Russia

In particular, the order does not completely prevent Russia from accessing SWIFT. But he must make sure that some Russian banks are removed from the SWIFT message system.

When SWIFT was launched in Iran in 2012 - the first time a country had been kicked off the grid - nearly half of the value of the country's oil industry was affected.

This reduced annual exports from $92.5 billion to $52 billion. Iranian banks were reconnected to the SWIFT system in 2016.

But Russia has also been preparing for this possibility for years. SWIFT's expulsion was first proposed in 2014 in response to the country's invasion of Ukraine's Donbas region. That year, Russia created its own domestic alternative to SWIFT, or the Financial Information Transfer System (SPFS).

China also operates a rival system called the Interbank Cross Border Payment System (CIPS). Although these systems are not supported or accepted internationally by SWIFT. But in the long run it could offer an alternative.

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