What is SWIFT and why is it considered to be a "nuclear option" against Russia
As Western governments threaten Russia with an unprecedented package of sanctions aimed at dissuading President Vladimir Putin from ordering an invasion of Ukraine, there is one measure that is particularly alarming in the Kremlin: cutting the country off from the global banking system. This possibility is often called "nuclear option" in the media, CNN reports.
U.S. officials have suggested in recent weeks that Russia could be removed from SWIFT, a highly secure network that connects thousands of financial institutions around the world. If that happens, deliveries of oil, gas and metals to Europe could be halted, warns Russia, writes CNN.
"If Russia is excluded from the SWIFT, then we will not receive foreign currency, but buyers, especially from European countries, will not receive our goods - oil, gas, metals and other important components," said the deputy speaker of the upper house of the Russian parliament. Nikolai Zhuravlyov.
What is SWIFT?
Society for Worldwide Interbank Financial Telecommunication (SWFT)
SWIFT was founded in 1973 to replace telex and is now used by more than 11.000 financial institutions to send secure messages and payment orders. Without a globally accepted alternative, this is a necessary channel for global finance.
Russia's removal from the SWIFT will prevent financial institutions from sending money in or out of the country, which would come as a sudden shock to Russian companies and their foreign customers - especially buyers of US-denominated oil and gas.
Russia's exclusion from SWIFT will cut its economy by five percent, Finance Minister Alexei Kudrin said in 2014.
SWIFT is based in Belgium and is governed by a board of 25 people, including Eddie Astanin, Chairman of the Board of Directors of the Russian Central Clearing House for Other Contracting Parties. SWIFT, which describes itself as a "neutral utility company", is included in Belgian law and must operate in accordance with EU regulations.
What will happen if Russia is removed from SWIFT?
SWIFT shut down Iranian banks in 2012 after the EU sanctioned them over the country's nuclear program. Iran lost almost half of its oil export revenues and 30 percent of its foreign policy after the closure.
It is unclear how much support there is among US allies in taking similar action against Russia. British Prime Minister Boris Johnson told lawmakers on Tuesday that his government was discussing with the United States the possibility of banning SWIFT from Russia.
The United States and Germany can lose the most if Russia is excluded, because their banks are the most frequent users of SWIFT for communication with Russian banks, writes CNN.
What would be Russia's countermeasures?
In recent years, Russia has taken steps to alleviate the situation if it is removed from the SWIFT.
Moscow has set up its own payment system, the SPFS, following Western sanctions imposed in 2014 over the annexation of Crimea. SPFS now has about 400 users, and 20 percent of domestic transfers are currently made through this system, according to data from the Central Bank of Russia.
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China's new cross-border interbank payment system, or CIPS, may provide another alternative to SWIFT, and Moscow may also be forced to resort to the use of cryptocurrencies. However, these are not attractive alternatives.
SWIFT is a European company, an association of many participating countries. The unanimity of all member states is needed to reach an exclusion decision. The decisions of the United States and Great Britain are not enough. "It remains to be seen whether other countries, especially those whose share of trade with Russia is in a very balanced way, support Russia's exclusion from the SWIFT," said economic analysts.
