What Is SWIFT, And Why Is It Important?

The European Union, the United States of America, and the United Kingdom recently agreed to remove some Russian banks from the SWIFT banking system. This is supposedly going to put economic pressure on Russia. But what does that mean, exactly? And what even is SWIFT? Let us explain.

What is SWIFT?

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. Basically, it’s a system that helps money travel around the world. To be more specific, it’s a messaging system for about 11000 financial institutions in over 200 countries. 

All of these financial institutions can easily communicate with each other and authorize payments, streamlining the whole process of transferring money from one bank to another. To put this into perspective, around 40 million transactions are carried out using SWIFT daily.

It’s also important to mention that SWIFT is a neutral organization. This means that it cannot issue its own sanctions. For a sanction to be put to action, governments must agree upon it. In this case of Russia, that’s exactly what happened – The European Union, the United States of America, and the United Kingdom all agreed to ban Russia from SWIFT. 

What does it mean if Russia is banned from SWIFT?

To put it simply, banning Russia from SWIFT would mean preventing Russia from sending and receiving payments. However, it’s important to point out that banning Russia from SWIFT doesn’t necessarily make transactions impossible, but rather difficult and costly. 

 “Cutting banks off will stop them [Russia] from conducting most of their financial transactions worldwide and effectively block Russian exports and imports,” said EU Commission President Ursula von der Leyen.

Since Russia is a big supplier of oil and gas, banning them from SWIFT could disrupt those supplies and push prices up. Basically, all international businesses in Russia would feel disruptions in the supply chain, importing and exporting goods, securing financing, and day-to-day business processes.