In modern warfare, the most terrifying, but least likely, to press is the nuclear button. In financial warfare, this "big killer" may be SWIFT.
Today, SWIFT is once again a game tool. On February 24, local time, Ukrainian Foreign Minister Kureba called for the closure of the SWIFT international settlement system against Russia. Subsequently, US President Biden did not act immediately, but still warned that Russia's removal from SWIFT "is always an option".
Previously, the ECB had also warned that sanctions against Moscow "could include blocking Russian banks from using SWIFT."
So, what is SWIFT? Why can it be a sanctions stick? Is SWIFT still a "financial nuclear button" today?
SWIFT: One of the main channels for delivering financial information
Since the 1950s, with the increasingly close combination of science and technology such as finance and computers, bank cards have been rapidly popularized around the world and have become the main carrier of bank information such as accounts of individuals, enterprises and financial institutions.
On this basis, the United States, Japan and other countries with developed financial development and advanced technology have successively developed their own independent payment card systems and financial information exchange systems, and formed the five major groups of MasterCard, Visa, American Express, JCB credit cards and Diners Club, and gradually grasped a monopoly position in the field of global international finance. However, due to the differences in standards between different groups, "how to communicate cross-border payments" has become the most headache for financial institutions in different countries.
In May 1973, the five major groups brought together 239 banks from 15 countries to form the Global Interbank Financial Telecommunications Association (SWIFT).
As a non-profit organization of international interbank self-cooperation, SWIFT's footprint is almost all over the world, and almost all important financial institutions in the world are members of this institution, creating the most popular, safest and most convenient exchange system in the world. Currently, the organization is headquartered in Brussels, Belgium, and has three clearinghouses in Amsterdam, New York and Switzerland, serving as a hub for information, data, trading and clearing among international banking peers.
In short, SWIFT is currently a major channel for the transmission of financial information among international financial institutions.
Within the SWIFT system, member banks communicate with each other accurately and efficiently by telegram. SWIFT messages distinguish between financial institutions by different codes, which are generally composed of 8 to 11 alphanumeric letters and Arabic numerals. For ordinary people, if there is a need for cross-border remittance, the role of SWIFT code can be intuitively felt.
At present, the global cross-border payment system is mainly centered on SWIFT (Global Interbank Financial Telecommunication Association) and CHIPS (New York Clearing House Interbank Payment System) as the core.
Why has SWIFT become a sanctions stick?
Although SWIFT is a neutral organization, it is also difficult to completely escape political influence.
Supposedly, the SWIFT system, based in Brussal, Belgium, should be dominated by the European Union, but swift has been reduced to a tool for the United States to launch financial sanctions against other countries on many occasions.
As early as the 1980s, the U.S. Treasury Department tried unsuccessfully to take control of SWIFT's database. After 9/11, U.S. financial security and intelligence organizations gradually strengthened their control over the SWIFT system in the name of counterterrorism. Since 2011, the U.S. State Department has officially begun monitoring the system's data. At this point, once the members of an association in SWIFT are on the blacklist of the US Treasury Department, they are at great risk of being cut off from financial transactions with external banks, which is a blow that most enterprises, financial institutions and even the country cannot bear.
In 2012, the United States and Europe upgraded financial sanctions against Iran, directly removing four important Iranian banks from the SWIFT system, and then threatening EU member states with economic ties to Iran, resulting in Iran losing nearly half of its oil export earnings and nearly 30% of its foreign trade.
After the Crimean incident in 2014, the United States eliminated seven large Russian banks from the SWIFT system, resulting in the freezing of the payment function of about 500,000 credit and debit cards, and panic runs. In the short term, Russia's major banks have been affected to varying degrees, and a large number of commercial activities have come to a standstill.
In March 2015, Poland's foreign minister said at a news conference that the expulsion of Russia from the SWIFT system was one of the toughest sanctions. He said:
"There are many options for sanctions, and severing contact with the SWIFT system would be a 'nuclear weapon' that would be detrimental to all sides, a very extreme measure."
Under the counterattack of the "Russian bear", is SWIFT still a "financial nuclear button"?
By 2014, most financial institutions, including the Russian Central Bank, had access to the SWIFT system and established close ties with the SWIFT system. After the pain of the SWIFT sanctions incident, the Russians had to think carefully about how to remove the "sword of Damocles" hanging overhead.
In 2015, the Russian international payment system issued the first batch of bank cards "Mir Card" that meet the standards of Russia's national payment system. Subsequently, Russia quickly established its own payment system (МИР) and financial information exchange system (СПФС), which fundamentally laid the foundation for Russia's de-dollarized financial infrastructure.
In fact, nowadays SWIFT may just be a messaging system, with it, settlement will be much more convenient, but without it, transactions are also possible, just a little clumsy.
At the same time, Russia has spared no effort on the road of "de-dollarization".
In 2016, Nabiurina, governor of the Russian Central Bank, made de-dollarization one of the annual tasks of the Central Bank of Russia; in 2018, Nabiurina combined de-dollarization with tax incentives; in June 2021, Russia began to clear the state welfare fund.
In addition, since the Russian debt crisis in 1998, the Russian government has been actively reducing its external debt.
According to the Institute of International Finance, Russia's government accounted for 20.5 percent of its external debt at the end of November, compared with 34 percent at the beginning of 2020. At present, most of the debt of the Russian government is issued by local currency bonds.
Combined punch down, the financial risk of the Russian state has been greatly reduced compared to the past, in this context, is it necessary for the United States to kick Russia out of SWIFT?
Last night, the United States announced the details of sanctions against Russia: sanctions on two major Russian financial institutions with assets of about $1 trillion; individual sanctions on several Russian oligarchs. It is worth noting, however, that the United States did not kick Russia out of the SWIFT system.
Harley Balzer, an emeritus professor at Georgetown University in the United States, believes that the use of sanctions will have a "chilling effect", that is, while blocking Russian transactions, it will also prevent some Western banks from trading with Russia. Against the backdrop of high oil prices, soaring gas prices, and exploding inflation in Europe and the United States, removing Russia from SWIFT could wreak havoc on European countries that rely on Russian oil and gas exports.
Considering Russia's important position in oil, natural gas and other scarce and necessary energy products, if the United States presses this "financial nuclear button", it may cause the end of "wounding a thousand enemies and losing eight hundred".
In this regard, Hong Hao, an analyst at bocom International, claimed that if the United States moved SWIFT, it would be the beginning of the collapse of the dollar hegemony.
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The main references in this article are as follows, and I would like to thank the original author at this time:
1. Swift System: The Game Point of the U.S.-Russia Financial War, Xu Wenhong
2. "De-dollarization: Russia's Counterattack in the Russian-American Financial War", Xu Wenhong
3. "Swift System, US Financial Hegemony and China's Response", Chen Yao, Yang Zhihuang
4.《Biden defends allowing Russian access to SWIFT》，Sylvan Lane
5.《Swift delay highlights divisions in US-led sanctions alliance》，Jonathan Guthrie
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