This report is part of ongoing coverage of the Russia-Ukraine war. Visit our dedicated page for more on this topic.
Ukraine’s besieged leaders are demanding that Russia be expelled from SWIFT, the ubiquitous payment system that links banks around the world.
“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 on their hands too,” Dmytro Kuleba, the Ukraine foreign minister, tweeted Thursday as Russian forces continued their invasion of his country.
SWIFT, the Society for Worldwide Interbank Financial Telecommunication, facilitates millions of daily payments among 11,000 financial institutions in more than 200 countries and territories. Terminating Russia’s access to SWIFT is “the nuclear option, economically, in terms of sanctions,” says Mai’a Cross, the Edward W. Brooke Professor of Political Science and International Affairs at Northeastern.
After days of international debate, the White House announced Saturday that some Russian banks will be disconnected from SWIFT. The European Union will finalize which banks will lose access, as SWIFT is based in Belgium.
Why has the international community been hesitant to apply SWIFT restrictions to the growing list of sanctions on Russia? Would a severing of access cause real harm to the Russian war effort in Ukraine?
Cross spoke Friday with News@Northeastern about the debate over SWIFT sanctions. Her comments have been edited for brevity and clarity.
Why is SWIFT so important to the global economy?
The SWIFT banking system is a widespread international infrastructure that allows countries to transfer money around the world. If you eject a country from SWIFT, you essentially cripple its ability to trade [goods] and move currencies.
What would happen to Russia if it were expelled from SWIFT?
It would mean catastrophic damage to Russia’s banking system and its access to oil and gas revenue profits. It doesn’t make it impossible for Russian banks, but they would have to rely on an old-school, primitive way of doing money transactions, such as email.
It would be heavily destructive to Russia’s economy. It would hurt its ability to acquire more weapons and keep the military campaign going.
It would also very much foment Russian domestic opposition to the war because it would result in an immediate impact on regular Russian peoples’ lives.
But those things would not happen in the immediate term. The Russian forces would still be able to continue what they’re doing for at least a little while. And when we look at the behavior of [Russian President Vladimir] Putin lately, even with all of these rounds of sanctions, you have to question whether any of it is going to work because he is taking a maximalist strategy. And he has been well aware that SWIFT has been on the table all this time.
Why have countries resisted using SWIFT as a sanction on Russia?
Some countries in Europe—primarily Germany, Hungary, France, and Italy—are taking more of a gradualist approach, saying they want to hold on to this nuclear option in case they need it down the road.
They also see the broader ramifications of blocking access—which happened previously when Iran was taken out of SWIFT—and that it doesn’t just target the elite and the Russian government. It actually makes it impossible for regular citizens to access and transfer money. And then you can’t use the SWIFT system to transfer humanitarian aid to regular citizens.
Other countries—in particular the Baltic states, who have always felt the threat of Russia more intensively—are in favor of going straight to this nuclear option of removing Russia from SWIFT.
It sounds like the United States is willing to move forward with that action now. But you have to have international agreement on it.
Has the hesitancy over applying SWIFT indicated weakness by the West?
You can look at it that way: That, to some extent, the rest of the world is not at the point of exercising the most severe retaliation. But at the same time, I think we do have to look at the sanctions that have been agreed upon and just how strong they are.
The European Union agreed to a very comprehensive package that targets the elites and the government. It blocks 70% of Russian banks from capital markets. It bans a whole bunch of exports that Russia relies on. And they’re preparing to freeze Putin’s and [foreign minister Sergei] Lavrov’s assets. So it isn’t as though they didn’t take a firm stance.
This is on top of quite severe sanctions that had been in place since 2014, and then, in the last three days, layering on two additional very punishing rounds of sanctions on Russia—so this is clearly a strong reaction.
[U.S.] President Biden has been criticized for not targeting Russian export of energy. But the reason why Biden hasn’t gone further is because he thinks—and he’s right—that sanctions should be designed to punish the target country. And something that actually takes on export of energy head-on would also punish American citizens and the rest of the world.
I think it makes sense for this first stage that the countries of the West are taking the sanctions as strongly as they can without putting SWIFT on the table. But SWIFT is there as an option.
There have been fears that banning Russia from SWIFT may motivate Russia and China to form their own international banking system. Is that a reasonable concern?
That could be one scenario that plays out. But if they’re off on their own while the rest of the world is in SWIFT, then it’s a pretty weak move, ultimately.
The only country that is really still in Russia’s corner, to some degree, is China. So we’re not just talking about the West vs. Russia. We’re talking about the global community condemning what Russia is doing.
And China needs SWIFT, too. So I’m not sure that this scenario will give any kind of leverage or power to Russia.