Beijing, 27 Feb (Xinhua) -- The White House announced on February 26 that the United States and its major Western allies have reached a consensus to ensure that the Global Interbank Financial Communications Association (SWIFT) will interrupt services to some Russian banks. Banning the SWIFT system is seen as a "big card" of sanctions played by the West against Russia in response to the Ukraine crisis.
A day earlier, U.S. President Joseph Biden had also said that some European countries were not ready to ban Russia from using the SWIFT system. The reason for the hesitation within the Western camp is because this "card" is played, and it is not only the interests of russia that are harmed.
This is the Central Bank of Russia photographed in Moscow, Russia, on February 25. (Xinhua News Agency, photo by Yevgeni Sinitzen)
What is SWIFT
According to a joint statement issued by the United States with the European Commission, France, Germany, Italy, the United Kingdom, and Canada, the ban on the use of SWIFT services by certain Russian banks is intended to "cut off the connection between these banks and the international financial system and combat their ability to operate globally."
Founded in 1973 and headquartered near Brussels, belgium, SWIFT's primary function is to transmit settlement information between global banking systems to enable safe and efficient cross-border payments. More than 11,000 financial institutions in more than 200 countries and regions use swift communication services.
The agency told Bloomberg that it will transmit an average of 42 million messages per day in 2021, including foreign exchange, interbank or interbank transfer transactions with customers, asset buying and selling orders, etc. NPR, citing experts, reported that the agency "does not move the money itself, but only transmits information about the money."
According to Npriz, SWIFT is also regulated by Western central banks such as the National Bank of Belgium, the US Federal Reserve System, and the European Central Bank.
According to the Russian SWIFT Association, about 300 financial institutions in Russia use SWIFT system services, second only to the United States in terms of the number of users; more than half of Russia's financial institutions are SWIFT members.
Video footage taken on Feb. 24 shows U.S. President Joe Biden announcing a new round of economic sanctions against Russia at the White House in Washington. (Photo by Xinhua news agency reporter Liu Jie)
Bidirectional influence
The move by the United States and its allies is intended to cause substantial isolation of Russia in the international financial community, which will affect the cross-border capital transactions of Russia, first and foremost, Russia's export foreign exchange earnings, including Russia's exports of energy products such as oil and gas, which is a major pillar of Russia's fiscal revenue.
However, the "disconnection" is two-way, and the damage is also two-way. Because Russia also uses the SWIFT system for foreign payments, the "disconnection" undoubtedly directly harms the interests of Western enterprises that have economic and trade exchanges with Russia.
When the situation on the Russian-Ukrainian border was tense, Ukraine asked the West to use this economic sanction against Russia, but Germany, Italy and other countries were hesitant to take this step because of the impact on their own enterprises.
With the escalation of the situation in Ukraine, the Italian and German governments have expressed their support for the measures to restrict Russia's use of the SWIFT system on the 26th, but they are still carefully weighing the scope of sanctions and trying to avoid their own damage.
At present, Western countries have not yet drawn up a list of "disconnected" targets, and if they target large financial institutions such as the Russian Savings Bank and the Russian Foreign Trade Bank, the potential impact will be even greater. The two banks have previously said they are ready to deal with any changes in the situation.
A joint statement issued by the West on the 26th wrote: "We are doing our best to study how to reduce the collateral damage of the SWIFT 'disconnection' measure and ensure that this measure hits the right target." What we need is targeted and practical SWIFT restriction measures. ”
Guntram Wolff, director of the Institute for European and Global Economic Research in Brussels, Belgium, told AFP that the "pros and cons" of banning SWIFT are controversial, especially for European countries that buy large quantities of Russian oil and gas, for example, and that it will bring difficulties in payment.
People pass by a bank's exchange rate display in Moscow, the Russian capital, on Feb. 24. Data from the Moscow Stock Exchange on the same day showed that the russian ruble exchange rate plummeted after President Putin announced his decision to launch a special military operation in the Donbass region. (Photo by Xinhua News Agency reporter Bai Xueqi)
Idiomatic means
The United States uses its dominant position in the international financial system to pull Western allies to adopt sanctions such as "freezing assets" and "prohibiting economic and trade exchanges" against other countries from time to time, and "banning SWIFT" is a strict means.
As part of its sanctions against Iran's nuclear activities, the United States pressed SWIFT in 2012 to suspend services to Iran's central bank and some other financial institutions. After the JCPOA was reached in 2015, many Iranian banks reconnected to the SWIFT system in 2016. However, in May 2018, the US government unilaterally withdrew from the Iranian nuclear agreement, restarted and added a series of sanctions against Iran, and SWIFT again announced in November of the same year that it would suspend the use of this system by some Iranian financial institutions.
After Crimea's decision to join Russia in a 2014 referendum, the United States and European allies briefly threatened to use the same tactic against Russia. The Russian side warned at the time that this would amount to a declaration of war on Russia, and the West finally shelved this idea. Agence France-Presse reported on the 26th that the exclusion of a big country such as Russia from SWIFT may prompt Russia to accelerate the development of an alternative cross-border financial service system.
Western countries are also prepared to limit the ability of Russia's central bank to use hundreds of billions of dollars of international reserves to stabilize their currencies and finances. U.S. officials say the latest sanctions are designed to expose the Russian economy to a "free-fall" depreciation of the ruble's exchange rate and a "spike in inflation." (Shen Min)