And about time too. After pussyfooting about for 72 hours when urgent action was needed, the dither and delay being down to the German government, Russia is out of SWIFT, the global payments system used by banks around the world and the principal mechanism for financing international trade.
Better late than never. It is a start and a decision that ought to have been taken when Russia launched its unprovoked attack on Ukraine. It will now be possible to restrict Russian access to financial markets around the world. And it means a challenge for Russian corporates who have to pay for imports and receive cash for exports. So it will be more difficult for Russian firms and individuals to transact around the world. There are alternatives to SWIFT such as messaging apps but they may be less efficient and secure. Exporters are about to find it much more expensive to sell to Russia. In brief, transaction volumes will fall and costs are going to rise.
What does it mean and what is the SWIFT messaging system?
Swift is the secure messaging system that makes fast, cross-border payments possible and enables international trade to take place. For payments systems sanctions against Russia to work requires the EU, UK, US and Canadian banks and their governments to work together. And it means ejecting Russian from Swift.
SWIFT: in its own words
SWIFT modestly describes itself as the way the world moves value.
“No other organisation can address the scale, precision, pace and trust that this demands. Swift is unique. We were established to find a better way for the global financial community to move value – a reliable, safe and secure approach that the community can trust, completely. We have constantly evolved in an ever-changing landscape, without undermining that trust. Nearly five decades on, our vibrant community reflects the complexity and diversity of the financial ecosystem.”
That is a lot of words to say it is a banking cooperative, headquartered in Belgium. SWIFT dates back to a 1973 meeting, initially involving 239 banks from 15 countries. They got together to solve a common problem: how to communicate about cross-border payments. The banks formed a cooperative utility and SWIFT went live with its messaging services in 1977, replacing Telex technology
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SWIFT by numbers
- 2021 saw the strongest growth in payments and securities traffic in three years.
- Traffic volumes across the Swift network grew by 11.2% in 2021.
- An average of 42 million payments and securities transactions were processed using Swift’s FIN message service per day last year.
- In 2021, SWIFT accelerated flows to achieve instant processing between 4 billion accounts and 11,000 institutions in more than 200 countries
- On 30 November 2021, SWIFT recorded 50.2 million messages – the most ever in a single day. By comparison, that is more than 66% higher than the daily peak just five years ago.