Why some world leaders are considering pulling Russia out of a banking system known as SWIFT
European Union leaders have considered what some call the “nuclear option” of removing Russia from SWIFT, a high-security network that connects thousands of financial institutions around the world, following the invasion of Ukraine.
US President Joe Biden said Thursday that pulling Russia out of SWIFT is not the direction the rest of Europe wants to go right now, but noted that pulling the nation off the network is “always an option.”
“The sanctions we’ve offered to all their banks have the same consequence, maybe more than SWIFT,” Biden said, referring to the latest round of sanctions he announced today.
Ukrainian Foreign Minister Dmytro Kuleba on Thursday urged the West to ban SWIFT from Russia in a tweet. Earlier Thursday, CNN reported that the EU was undecided on whether to cut Russia off from SWIFT and that EU countries were divided on the decision.
Corn what is SWIFT, and what could this mean for Russia? The Society for Worldwide Interbank Financial Telecommunication was founded in 1973 to replace the telex and is today used by more than 11,000 financial institutions to send secure messages and payment orders. With no globally accepted alternative, this is essential plumbing for global finance.
Russia’s withdrawal from SWIFT would make it almost impossible for financial institutions to send money to or from the country, causing a sudden shock to Russian businesses and their foreign customers, especially buyers of oil exports and gas denominated in US dollars.
“The cut would end all international transactions, trigger currency volatility and cause massive capital outflows,” said Maria Shagina, visiting fellow at the Finnish Institute of International Affairs, wrote in an article last year for the Carnegie Moscow Center. Excluding Russia from SWIFT would shrink its economy by 5%, says former finance minister Alexei Kudrin estimated in 2014.
SWIFT is based in Belgium and governed by a 25-person board of directors, including Eddie Astanin, chairman of the board of the Central Counterparty Clearing Center of Russia. SWIFT, which describes itself as a “neutral public service”, is a company incorporated under Belgian law and must comply with EU regulations.
What happens if Russia is removed? There is precedent for removing a country from SWIFT.
SWIFT unplugged Iranian banks in 2012 after they were sanctioned by the European Union for the country’s nuclear program. Iran lost almost half of its oil export revenue and 30% of its foreign trade as a result of the disconnection, according to Shagina.
“SWIFT is a neutral global cooperative created and operated for the collective benefit of its community,” the organization said in a statement in January. “Any decision to impose sanctions on countries or individual entities rests solely with the relevant government bodies and applicable lawmakers,” he added.
It is unclear what support US allies have for taking similar action against Russia. The United States and Germany have the most to lose if Russia goes offline, as their banks are the most frequent SWIFT users to communicate with Russian banks, according to Shagina.
The European Central Bank has warned lenders with significant exposure to Russia to prepare for sanctions against Moscow, according to the FinancialTimes. ECB officials also asked banks how they would react to scenarios, including a move to block Russian banks from accessing SWIFT.
Learn more about SWIFT here.
CNN’s Kate Sullivan in Washington, DC, Niamh Kennedy in London and James Frater in Lviv contributed to this post.