In another familiar meltdown, US President Joe Biden has said he isn't rushing to kick Russia out of the SWIFT platform.
Though Biden said the ban is an 'option," he added that it isn't the right time to do so. He added that kicking Russia out of SWIFT was not a 'position the rest of Europe wishes to take.' Biden seems to be taking a cue from German Chancellor Olaf Scholz who said cutting Russia off from the system was not part of the European Union sanctions against Moscow following the invasion of Ukraine.
Earlier, Ukrainian President Volodymyr Zelensky had repeatedly asked the US to cut Russia off from the system. On Thursday, after Vladimir Putin sent his troops into Ukraine, the country's foreign minister, Dmytro Kuleba, again pleaded with the West and Joe Biden to punish Russia by blocking it off SWIFT.
What is SWIFT?
SWIFT is the world's main international payments network. It is expanded as Society for Worldwide Interbank Financial Telecommunication.
The system is crucial in facilitating modern international financial transactions. It offers a secure platform for fast payment across national borders.
Trillions of dollars pass through the network each day. According to the latest data, a whopping 38 million transactions are conducted each day over the platform.
How Does SWIFT System Work?
According to Investopedia, the SWIFT system assigns each member institution a unique ID code that identifies not only the bank name but country, city, and branch. This code is called variously-- bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code.
What Transactions Take Place Over SWIFT?
SWIFT is primarily a messaging system. As many as 41 million messages are passed through between clients each day. "SWIFT does not hold any funds or securities, nor does it manage client accounts, says Investopedia.
Although the platform started with the purpose of completing simple cross-border transactions, it went on to have more complex transactions quite soon. The platform now handles security transactions, treasury transactions, trade transactions, and system transactions.
What was International Payment System in Use Before SWIFT?
Before Swift was introduced, the Telex system was used for processing international transactions. Telex had several drawbacks -- including the lack of unified code, speed issues, security gaps, and the chance of human error.
When was SWIFT Formed?
The SWIFT system was formed in 1973 when six international banks came together to create the new network. It all began when the union of these major banks started talking about setting up a message-switching project' to ease international financial transactions. The consortium of banks was named SociÃ©tÃ© FinanciÃ¨re EuropÃ©enne and it was a group of six major banks in Luxembourg and Paris.
The SWIFT system officially came into existence in 1973 with 239 banks from 15 countries.
Which Institutions Depend on SWIFT?
A whole spectrum of organizations and institutions â Banks, Brokerages, Trading Houses, Securities Dealers, asset managers, clearinghouses, currency exchanges, businesses, treasury traders, money brokers, etc.
Does SWIFT Have the Mandate to Ban Russia?
Going by its origins, SWIFT is a neutral organisation with no intent or authority to ban any country from the platform. However, in recent years, western governments have been exerting pressure on the platform to punish countries violating international codes of conduct. The blocking of Iran from the platform in 2012 owing to Tehran's nuclear program is an example.
How Will a Ban Affect Russia?
Cutting Russia off the platform will have a serious impact on the way the daily financial business is transacted. The country's banks will be forced to conduct all businesses directly through a horde of international financial institutions, which will be chaotic, slow, and haphazard.
More than 40 percent of Russia's revenue comes from the oil trade. A quick ban on Swift will be lethal to the Russian economy. The impact of SWIFT ban on Iran is a case in point. According to Alexandra Vacroux, executive director of the Davis Center for Russian and Eurasian Studies at Harvard University, Iran lost half of its oil export revenues and 30 percent of its foreign trade after it was thrown out of SWIFT.
Why is the West Hesitant About Kicking Russia Out?
The primary reason why the Biden administration will not immediately push for blocking Russia is that not all of the European allies are on the same page as the US. Another factor is that Russia is nonchalant in the face of such threats and has said repeatedly that it has taken all measures to survive and beat the Western sanctions.
There are other reasons as well. The ban on SWIFT will be an incentive for Russia to depend on the Chinese alternative system, known as Cips. The US does not obviously like such a scenario, which gives a massive push to the Chinese alternative.
What are Russia's options if it is thrown out of SWIFT?
The chief of one of Russia's largest banks VTB downplayed the threat of blocking the country from SWIFT. According to t the Guardian, he had said that Moscow could use other channels for payments, such as phones, messaging apps, or email. Russia is also confident that China, the second biggest world economic power after China, will come to its rescue.