President Joe Biden’s tough economic sanctions against Russia, in retaliation for Russia President Vladimir Putin’s invasion of Ukraine, will not involve removing the country from the global SWIFT banking system, as allies remain divided on whether to deploy the ‘nuclear option’ action.
Biden revealed Washington’s new tranche of economic sanctions on Thursday during a media briefing regarding Putin’s declaration of war against Ukraine. Soon after, the U.S. Department of Treasury detailed some of the penalties, which include sanctions against Russia’s two biggest state-owned banks, Sberbank and VTB Bank, in addition to 90 financial subsidiaries of the two banks.
U.S. sanctions will also target family members close to Putin and a host of other Russian financial elites. However, Biden said that the U.S. and European allies are not currently considering removing Russia from the financial messaging and payment system known as The Society for Worldwide Interbank Financial Telecommunication, or SWIFT. Although, Biden implied that it’s possible that Russia could be removed from SWIFT in the future.
“It is always an option,” Biden said. “But right now, that’s not the position that the rest of Europe wishes to take.”
What is SWIFT?
The SWIFT financial service is a Belgium-based co-operative, founded in 1973, and overseen by multiple government banking systems including the U.S. Federal Reserve System, the European Central Bank, and the National Bank of Belgium.
The SWIFT system acts as a foundation for international banking, helping connect together over 11,000 banks, financial firms, and companies in over 200 countries. The technology helps facilitate trillions of dollars worth of transactions each day, and helps financial institutions obtain and record messages (think of them like digital fingerprints or receipts) detailing those transactions.
If Russia were removed from SWIFT, the country would be severely hampered in its ability to participate in global trade or raise overseas financing. Russian banks would still be able to conduct cross-border transaction, but would have to rely on outdated tech like fax and email, which would make the process slower and more costly.
SWIFT is a financial ‘nuclear option’
SWIFT is so intertwined with the global economy that some financial analysts have described isolating Russia from the network as a “nuclear option” causing devastating financial fallout in the country. Even so, while Biden has declined to move on SWIFT yet, some U.S. lawmakers like Sen. Marsha Blackburn (R-TN) are in favor of cutting Russia off from the global transaction network.
In a tweet Thursday, Ukraine’s Minister of Foreign Affairs, Dmytro Kuleba, also called for foreign leaders to isolate Russia from SWIFT as part of the “devastating sanctions” Kuleba hoped Western leaders would inflict on Russia. But some European Union member states (Ukraine is not a member of the EU) are reluctant to make such a move.
“Urgency and consensus is utmost priority at the moment,” said an EU diplomat, adding that at this stage that meant taking no action on SWIFT, because doing so would have such wide-ranging consequences, also in Europe. Removing Russia from SWIFT would make it tough for European creditors to get money back from Russian debtors and banks.
Yet other countries believe that removing Russia from SWIFT would be appropriate.
Foreign ministers of Estonia, Latvia, and Lithuania have all called for the “international community” to remove Russia from SWIFT. British Prime Minister Boris Johnson and Canadian Prime Minister Justin Trudeau both also expressed interest in booting Russia from SWIFT, the Financial Times reports, although Johnson later downplayed the idea.
In an address to the U.K. parliament Thursday, Johnson said that for measures against Russia to work it is “vital we have unity.”
Never miss a story: Follow your favorite topics and authors to get a personalized email with the journalism that matters most to you.
