- NATO members are mulling cutting Russia out of Swift.
- The service serves as the backbone for communication throughout the entire global financial system.
- Banning Russia from it would severely harm its economy, but countries are mixed on whether to take such action.
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The US's new sanctions against Russia were a "first tranche," US President Joe Biden said on Tuesday, and Prime Minister Boris Johnson described the UK's latest punitive measures as a "first barrage."
They weren't enough. Russia attacked Ukraine early on Thursday, with reports describing missile strikes and explosions throughout the country. NATO members were quick to denounce Putin and Russia's actions and hinted at harsher economic punishment to come.
But with initial sanctions proving ineffective at staving off an attack, all eyes are on the West for its next counter.
Among the harshest economic and financial options on the table is a cutoff to Swift, or the Society for Worldwide Interbank Financial Telecommunication. The Belgian communications system was launched in 1973 to serve as a neutral platform for banks to chat about financial transfers, transactions, and trades.
The service now links more than 11,000 financial institutions in more than 200 countries and territories. It also hosted 42 million messages a day on average in 2021, according to Bloomberg.
Put simply, Swift serves as a massive group chat for the world's financial institutions. It's not used to actually hold or transfer any cash, but communication through the service is critical for the global financial network. Cutting Russia out of the service would likely be economically catastrophic.
The possibility that Russia is pushed off the platform is quickly becoming real. Prime Minister Johnson has thrown his support behind such a move, and Russia's attack painted initial sanctions as insufficient. Other European nations and the US, however, aren't pushing for a Swift ban just yet. While most haven't entirely ruled it out, they've raised concerns around a ban doing just as much harm to innocent Russians as it would to Putin and his inner circle.
Cutting off Russia from Swift would effectively sever the country from the global financial system. Sanctions have so far targetted Russian financial institutions and elites, with countries aiming to divert any economic harm from Russia's general populace. Banning the entire country from Swift would halt Russia's ability to conduct international trade, receive foreign currency, or continue global business dealings.
It's unclear just how hard that would hit the Russian economy, but the estimates available are bleak. Russia forecasted in 2014 that losing access to Swift would prompt a 5% drop in the country's gross domestic product, according to the Carnegie Moscow Center. Analysts at Capital Economics backed that projection on Tuesday, saying harsher sanctions such as Swift removal would power a 5% drop in output.
There also aren't any true alternatives to Swift, meaning Russia couldn't simply pivot to another global communications system. Russia began developing its own domestic network for financial communications in 2014 amid fresh sanction risk from the US. Yet the service only hosts roughly 400 institutions, making it far less effective than Swift.
Dmitri Medvedev, the deputy chairman of the Security Council of Russia, said in January that being booted off Swift wouldn't be "a catastrophe," but noted that it would make bank communication "more difficult."
Whether Russia gets the boot or not is still up in the air. Prime Minister Johnson is "pushing very hard" to kick Russia off the system, but will only do so in concert with other NATO members, the Financial Times reported on Tuesday, citing an anonymous British official. Yet German Chancellor Olaf Scholz warned against such a move on Thursday, saying Germany and the EU wouldn't back such dramatic action, according to FT.
The US has also been wary of taking such action. While cutting Russia out of Swift would probably bring severe economic pain, that pain would be felt throughout the country, not just by elites and government officials. NATO members have been keen to steer damage away from working Russians, and banning the country from Swift would almost surely have severe spillover effects.
For some of Ukraine's own officials, however, leveraging Swift is the obvious next step for stopping Russia's invasion. Volodymyr Zelenskyy, the President of Ukraine, urged "the disconnection of Russia from SWIFT" along with other retaliatory measures in a Thursday morning tweet, adding he discussed the option with French President Emmanuel Macron.
Other Ukrainian officials were more urgent in calling for a Swift ban.
"I will not be diplomatic on this. Everyone who now doubts whether Russia should be banned from SWIFT has to understand that the blood of innocent Ukrainian men, women and children will be in their hands too," Dmytro Kuleba, Ukraine's Minister of Foreign Affairs, said in a Thursday tweet. "BAN RUSSIA FROM SWIFT."