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The US threatens to cut Russia off from the Swift payment system. – Business

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 The US threatens to cut Russia off from the Swift payment system.  - Business


US President Joe Biden has threatened Russia with tough sanctions if Russian troops invade Ukraine. A measure that experts call a “nuclear option” is under discussion: the West could cut off Russia’s most important international payment system. We’re talking about Swift, an acronym for “Society for Worldwide Interbank Financial Telecommunication”. More than 11,000 banks, stock exchanges and financial service providers in 210 countries use the secure messaging system, through which around five trillion dollars are transferred to bank accounts every day. If a country loses access to Swift, an economic catastrophe threatens: many companies could neither pay for imports nor collect their exports overnight. That would be disastrous for Russia as an energy exporter. The economy could collapse, Russia’s financial markets crash. Calls for Russia to be expelled from Swift first surfaced in 2014 as punishment for the country’s Crimean invasion. Britain then appealed to European leaders to consider such an option. The head of the Russian state bank VTB, Andrei Kostin, called the measure “a financial nuclear bomb”. Former Russian Prime Minister Dmitry Medvedev described Russia’s possible exclusion from Swift as a “declaration of war”. Swift provides a secure communication system for transfers. Example: Customer A wants to transfer money to Customer B abroad. Customer A’s bank then sends a standardized Swift message to customer B’s bank, noting the sender, the amount, the account number and the bank’s Swift code (BIC code). Bank B uses this information to credit the account. Payments will be settled later – and has nothing to do with Swift. Swift is not a government agency, but a cooperative owned by major global banks. The international payment system, founded in 1973, is based in Brussels and is subject to EU law. The US thus has no formal way of forcing Russia to be excluded from Swift. But as is so often the case, the right of the strongest applies in an emergency. The US Congress decided in 2012 that the Swift executives would face financial sanctions if the payment system provider refused a corresponding order from the USA – at that time it was about Iran: The country has been excluded from Swift since then and lost almost half its oil export earnings and 30 percent of its foreign trade. After the Taliban took power, international transfers via the Swift system to Afghanistan were also suspended – the country’s financial system has collapsed, and aid money is hardly getting through. In recent years, Russia and China have set up their own payment systems to reduce dependence from Swift and thus reduce the risk of sanctions. The Russian payment platform “System for Transfer of Financial Messages” (SPFS) has around 400 member banks – they are only Russian institutions. Russia is trying to attract foreign banks with cheap rate offers, but SPFS has not yet been a good alternative to Swift, says Maria Shagina, an expert at the Carnegie Moscow Center, in her report: “Swift operates 24 hours a day, while SPFS only sends transfer messages on weekdays during office hours, there is also a low cap on news data.”


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