Why SWIFT is the nuclear option of Russia’s financial sanctions

The United States and its NATO allies have imposed an unprecedented number of sanctions against Russia as punishment for last week’s invasion of Ukraine, including a ban on the export of cutting – edge technology to Russia.

One move by which Ukraine and some of its allies have pleaded is to cut Russia off from SWIFT, the world’s largest network of financial transactions. It is an option that would separate Russia from most international banking transactions, and potentially overwhelm its economy for some time.

Saturday, the US and its allies moved forward with plans to do just that. “We promise to ensure the removal of Russia’s selected banks from the SWIFT messaging system,” the leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada and the US said in a joint statement. “This will ensure that these banks are disconnected from the international financial system and undermine their ability to operate globally.”

SWIFT (World Association of Interbank Financial Telecommunications) is a financial messaging network used by more than 11,000 financial institutions in 209 countries. Supervised by G10 central banks, the SWIFT payment network uses standardized secure codes that allow financial institutions to send and receive information, such as instructions for transferring money across borders.

The SWIFT network is crucial for cross – border trade, as it enables businesses in one country to guarantee payment in another. For example, an EU firm that buys Russian products must use SWIFT to transfer funds from a local bank to the Russian seller’s bank account using SWIFT banking codes.

Once Russia is unplugged from the network, its government and businesses would no longer be able to pay for goods and services unless Russia establishes secondary measures. Forty percent of Russia’s revenue from oil and gas sales goes through the SWIFT network, according to Aseem Prakash, co – founder and Global Futurist at the Center for Innovation of the FutureToronto-based consulting firm.

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Why SWIFT is the nuclear option of Russia’s financial sanctions

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