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| Russia's ban on Swift has serious economic repercussions |
As the United States and the European Union respond to Russia's invasion of Ukraine with economic sanctions, cutting off the country's access to the international payment system SWIFT has been evaluated as a "nuclear option," so what does that mean and why is Europe reluctant to prevent Russia from using it?
Swift system
Headquartered in Belgium, SWIFT, which stands for Society for Worldwide Interbank Financial Telecommunication, handles payment requests and correspondence among 11,000 financial institutions worldwide, and last year delivered an average of 42 million messages per day.
The Washington Post likens the system to the "Gmail" of global banking, and the Financial Times notes that while Russia and others can still bank with other countries without Swift, it will take more effort and be more expensive.
Isolating Russia from the Swift system would have a major economic impact : when the United States saw Russia expelled from the system in 2014 over its annexation of Crimea, former Russian Finance Minister Alexei Kudrin estimated that Russia's GDP would shrink by 5% within a year without Swift. Then-Prime Minister Dmitry Medvedev likened the move to a "declaration of war".
The Financial Times also notes that the move will harm Russia's ability to reap profits from oil and gas exports, which make up 40% of the country's revenue.
Russia has created an alternative payments system, and China also has its own that Russia can use, but the Atlantic Council notes that both systems are much smaller than Swift and will not sufficiently compensate for it.
Repercussions of banning Russia from the SWIFT system
But expelling Russia from the SWIFT system would damage the EU's ability to pay for the Russian oil and gas imports on which it depends.
Today, Ukrainian Foreign Minister Dmytro Kuleba tweeted, "I will not be a diplomat in this matter. Anyone who doubts now whether Russia should be banned from Swift should understand that their hands will be stained with the blood of innocent Ukrainian men, women and children. BLOCK Russia from SWIFT."
Russia's share of SWIFT transactions was 1.5 percent in 2020, according to figures cited by the Financial Times.
Will Russia be banned from the SWIFT system?
Some world leaders such as British Prime Minister Boris Johnson have urged Russia's expulsion from the Swift system, but Reuters reports that EU officials are "unlikely" to take such a step at this point given the potential fallout.
"It could create huge chaos in Russia, but also for cross-border payment services," a senior foreign bank executive told the Financial Times. "How will Europe pay the gas bill without the SWIFT system?"
President Joe Biden said Thursday that banning Russia from the SWIFT system remains an "option", but the United States has not taken such a step yet given that "at the moment the rest of Europe is unwilling to take such a position."
Sanctions against Russia
Russia invaded Ukraine early Thursday morning after weeks of speculation that an attack was imminent, drawing widespread condemnation from officials around the world.
The United States and other foreign governments have so far chosen to respond to Russia's assaults with economic sanctions, with Biden refusing to send American troops to Ukraine because doing so could spark a "global war."
Countries including the United States, the United Kingdom, Australia, Canada, Japan and the European Union had previously announced some sanctions , after Russian President Vladimir Putin paved the way for Monday's offensive by officially recognizing the rebel states of Donetsk and Luhansk in eastern Ukraine.
Biden issued the "first batch" of his administration's sanctions against Russia on Tuesday, which included a "complete ban" of two Russian banks from accessing Western financial markets and sanctions targeting "the Russian elite and their family members."
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