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The ban on the use of the interbank payment system Swift and the sanctions on the Russian central bank announced by the US and Western allies constitute their toughest response to date to the invasion of Ukraine.
What is Swift?
SWIFT is a system for exchanging messages between banks worldwide. It is the global financial artery that enables the smooth and rapid transfer of money across borders.
It is an interbank system through which financial institutions record, update and process cross-border financial transactions.
Founded in 1973, it is headquartered in Belgium and connects 11,000 banks and institutions in more than 200 countries.
SWIFT sends more than 40 million messages a day as trillions of dollars change hands between companies and governments.
More than 1% of these messages are estimated to involve payments from Russia.
SWIFT was created by US and European banks, who did not want a single institution to develop its own system and have a monopoly, and is jointly owned by more than 2,000 banks and financial institutions. It is supervised by the National Bank of Belgium in cooperation with the largest central banks around the world.
Who owns and controls Swift?
SWIFT was created by US and European banks, who did not want a single institution to develop its own system and have a monopoly.
The SWIFT network is jointly owned by more than 2,000 banks and financial institutions.
It is overseen by the National Bank of Belgium in cooperation with major central banks around the world, including the US Federal Reserve and the Bank of England.
Swift ensures its members the security of international commercial transactions and is not supposed to be involved in disputes between them.
However, Iran in 2012 was excluded from SWIFT as part of sanctions over its nuclear programme. This exclusion deprived Iran of an amount equivalent to almost half of its export revenues and about 30% of its foreign trade revenues.
The exclusion from swift is a decision solely for the governments of the countries, not the authorities overseeing it.
How Russia will be affected by the SWIFT blockade
According to the BBC, the blocking of Russian companies from SWIFT will deprive them of access to the smooth and direct transactions provided by the system.[/B] This means that payments for valuable energy and agricultural products would be severely disrupted.
Banks that would be blocked would likely have to deal directly with each other, adding delays and extra costs to their operations. And the blockade means a cut in valuable revenue for the Russian government, which cannot recover international profits from its oil and gas exports.
Recall that in 2014 Russia was again threatened with a SWIFT blockade over events in Crimea. At that time the Kremlin had stated that such a move would be tantamount to a declaration of war, however the West did not carry out its threat at that time.
Contents of this article including associated images are belongs Cyprus Times
Views & opinions expressed are those of the author and/or Cyprus Times
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