Most Disruptive Sanctions Against Russia
The United States and European nations agreed to impose the most potentially crippling financial penalties yet on Russia over its unrelenting invasion of Ukraine, going after the central bank reserves that underpin the Russian economy and severing some Russian banks from a vital global financial network. Exclusion from SWIFT, a very discreet but important cog in the machinery of international finance, is one of the most disruptive sanctions the West has deployed against Russia. The measures were backed by the United States, Canada, the European Commission, Britain, France, Germany and Italy.
Founded in 1973, the Society for Worldwide Interbank Financial Telecommunication, or Swift, is the financial-messaging infrastructure that links the world’s banks. Swift doesn’t handle actual money transfers itself. It is a messaging system, developed in the 1970s to replace relying upon Telex machines, provides banks the means to communicate rapidly, securely and inexpensively, a secure way banks transmit transfer requests to each other. Money moving from one account to another often passes by multiple banks before landing in the final destination, particularly if it involves a foreign currency. Swift routes messages with instructions from one bank to another, allowing them to know where the money should ultimately land. The Belgium-based system is run by its member banks and handles millions of daily payment instructions across more than 200 countries and territories and 11,000 financial institutions. Iran and North Korea are cut off from it.
According to the national association Rosswift, Russia is the second-largest country following the United States in terms of the number of users, with some 300 Russian financial institutions belonging to the system. More than half of Russia's financial institutions are members of SWIFT, it added. Russia does have its own domestic financial infrastructure, including the SPFS system for bank transfers and the Mir system for card payments, similar to the Visa and Mastercard systems.
Tactically, the advantages and disadvantages are debatable. In practical terms, being removed from SWIFT means Russian banks can't use it to make or receive payments with foreign financial institutions for trade transactions. Operationally it would be a real headache, especially for European countries that have considerable trade with Russia, which is their single biggest supplier of natural gas. Western nations threatened to exclude Russia from SWIFT in 2014 following its annexation of Crimea. But excluding such a major country -- Russia is also a major oil exporter -- could spur Moscow to accelerate the development of an alternative transfer system, with China for example.
While U.S. and European officials made clear they still were working out the mechanics of how to implement the latest measures, and intend to spare Russia’s oil and natural gas exports, the sanctions in total potentially could amount to some of the toughest levied on a nation in modern times. If fully carried out as planned, the measures will severely damage the Russian economy and markedly constrain its ability to import and export goods. The leaders have also committed to imposing restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of the sanctions put forward by the countries. A decision was made to launch a transatlantic task force the coming week, that will ensure the effective implementation of the financial sanctions by identifying and freezing assets of sanctioned individuals and companies that exist within the jurisdictions of the United States and its allies.
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