During a period in which the United States, the United Kingdom, and the European Union impose new sanctions on Russia in response to its activities in Ukraine and explore strengthening those penalties, one concept under consideration is to block access to a messaging system known as Swift.
Swift is so important to the worldwide financial system that any mention of it causes consternation among bankers and diplomats alike.
1. What exactly is Swift?
Consider Swift, an abbreviation for the Society for Worldwide Interbank Financial Telecommunication, as the Gmail of the global financial world. It facilitates the transmission of encrypted messages between more than 11,000 financial institutions and businesses in more than 200 countries and territories.
The message volume, which averaged 42 million messages per day last year, includes orders and confirmations for payments, trades, and currency exchanges, among other things. Members of the cooperative, which is based just outside of Brussels, came together in 1973 to put an end to the dependency on the telex system.
2. What exactly is the big deal about losing access?
A country that is cut off from Swift may experience tremendous economic hardship. That is exactly what happened to Iran in 2012 when its banks were denied access to the Swift payment system as a result of European Union sanctions targeting the country’s nuclear program and its sources of financing.
(After the European Union removed them from its sanctions list in 2016, many of the banks were able to resume operations.)
When Western nations threatened Russia’s access to the Swift payment system in 2014, Alexei Kudrin, a former finance minister close to President Vladimir Putin, predicted that the move would cut Russia’s gross domestic product by 5 percent in a year.
He was right. It is possible that cutting Russia off from Swift will have repercussions for other countries as well, given that Russia is a major energy supplier to Europe and that countries rely on the Swift system to pay for petroleum. Russian officials have categorically dismissed allegations that they are planning an invasion of Ukraine.
3. Are there any other programming languages except Swift?
No, not really, or at least not at this time. Since 2014, the Bank of Russia has operated its own financial messaging system for use by Russian and foreign financial institutions. That one, on the other hand, has only approximately 400 users.
It was stated in 2021 that the People’s Bank of China would form a joint venture with Swift, which was viewed as an insurance policy against the possibility of being shut off from the global financial system by some observers.
One concern among Western authorities is that prohibiting countries from using Swift may encourage the development of alternative payment systems. Swift has been threatened by digital currencies and the technology that underpins them for several years, but they are still far from being able to completely replace the system.
4. How safe is Swift in terms of security?
There have been a number of successful attempts to rob financial institutions using counterfeit Swift messages, with some of the attempts being successful.
Bangladesh’s central bank suffered an $81 million loss in 2016 after hackers hacked the system and duped the Federal Reserve Bank of New York into transferring money on their behalf.
Swift stressed that while its own network had not been compromised, it has increased security in the wider sector by requiring member firms to implement obligatory and advisory controls.
5. Who is in charge of Swift?
Swift is not regulated in the same manner that a bank is since it does not accept deposits. Besides the National Bank of Belgium, representatives from the Federal Reserve System, Bank of England, European Central Bank, the Bank of Japan, and other major central banks are present to oversee the system.
To put it another way: generally speaking, Swift would only restrict access if the European Union passed sanctions against a specific entity or country.
Swift stopped several Iranian lenders in 2018 following the imposition of a fresh round of sanctions by the United States, while the company claims that this was “an isolated event” that was “taken in the interest of the stability and integrity of the wider global financial system.”