The United States and the European Union (EU) have chosen to partially exercise the nuclear weapons option in terms of economic sanctions. Several Russian financial institutions have been disconnected from SWIFT, the world’s most important payment network. Central bank assets must also be frozen, limiting Moscow’s access to its foreign reserves.
These sanctions are the toughest against Moscow since its forces invaded Ukraine, and are expected to have a substantial impact in a country that relies heavily on the SWIFT platform for vital natural resource transactions, particularly payments for oil and gas exports. Cutting off a country from SWIFT is the equivalent of blocking a country’s internet access in the financial world.
What is SWIFT?
The SWIFT system, or Society for Worldwide Interbank Financial Telecommunications, is a secure infrastructure that allows financial institutions to exchange information about global monetary transactions, such as money transfers.
Although SWIFT does not move money directly, it acts as an intermediary for over 11,000 institutions in over 200 countries, providing secure financial communications services.
Its headquarters are in Belgium and it is controlled by the central banks of eleven industrialized countries: Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.
What is the purpose behind this?
Moscow has been building up a foreign exchange reserve since the previous wave of sanctions in 2014, with reserves reaching a record $630 billion in January 2022. The new limits, experts say, will significantly decrease the reserves available to the central bank of the country. parents. .
Attempts have been made at SWIFT workarounds. However, none proved to be successful. For the past seven years, Russia has been working on alternatives, including the Money Message Transfer System, which is an analogue of the Russian Central Bank’s SWIFT money transfer system. According to sources, the Russians are collaborating with the Chinese on a competitor of SWIFT.
It will be fascinating to see if Moscow can use this platform to overcome the partial ban, which could soon be increased to a full ban.
While the ban may take some time to come into effect, it is important to emphasize that it indicates a strong commitment from Western countries.
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