European Union foreign ministers have discussed banning Russia from the Swift payment network, which is pivotal for the smooth transaction of money worldwide.
According to diplomatic sources, the move is being considered as part of further sanctions on Moscow following the invasion of Ukraine.
Ukraine’s president Volodymy Zelensky said an ban should be immediate to tighten the screw on Moscow. But several countries are reluctant to act.
Banning Russia from the system – used by thousands of financial institutions – would hit the country’s banking network and access to funds. There would, however, be blowback on other countries and companies because, for example, buying oil and gas from Russia would be disrupted.
EU foreign affairs chief Josep Borrell said excluding Russia from Swift “was considered” by foreign ministers on Friday, but added the move didn’t get the “necessary unanimity”.
Mr Borrell said the move remained a possibility for “future consideration”.
Defence Secretary Ben Wallace has been pushing for a ban, telling the BBC on Friday: “Britain wants the Swift system to be turned off for Russia. But unfortunately the Swift system is not in our control. It is not a unilateral decision.”
But ahead of Friday’s meeting, Germany’s foreign minister, Annalena Baerbock, said Berlin did not believe excluding Moscow from the Swift was the right thing to do at this moment.
She told reporters: “I can understand – I feel the same way – that in these minutes, in these hours, emotions are running high and that words like ‘Swift Agreement’ sound very, very strong, but at these moments you have to… keep a cool head.”
Earlier on Friday, France’s Finance Minister Bruno Le Maire said a Swift sanction would only be used as a last resort.
Swift is the global financial artery that allows the smooth and rapid transfer of money across borders. It stands for Society for Worldwide Interbank Financial Telecommunication.
Created in 1973 and based in Belgium, Swift links 11,000 banks and institutions in more than 200 countries.
But Swift is not your traditional High Street bank. It is a sort of instant messaging system that informs users when payments have been sent and arrived.
It sends more than 40 million messages a day, as trillions of dollars change hands between companies and governments.
More than 1% of those messages are thought to involve Russian payments.
Swift was created by American and European banks, which did not want a single institution developing their own system and having a monopoly.
The network is now jointly-owned by more than 2,000 banks and financial institutions.
It is overseen by the National Bank of Belgium, in partnership with major central banks around the world – including the US Federal Reserve and the Bank of England.
Swift helps make secure international trade possible for its members, and is not supposed to take sides in disputes.
However, Iran was banned from Swift in 2012, as part of sanctions over its nuclear programme. It lost almost half of its oil export revenues and 30% of foreign trade.
Swift says it has no influence over sanctions and any decision to impose them rests with governments.
Russian companies would lose access to the normal smooth and instant transactions provided by Swift. Payments for its valuable energy and agricultural products would be severely disrupted.
Banks would be likely to have to deal directly with one another, adding delays and extra costs, and ultimately cutting off revenues for the Russian government.
Russia was threatened with a Swift expulsion before – in 2014 when it annexed Crimea. Russia said the move would be tantamount to a declaration of war.
Western allies did not go ahead, but the threat did prompt Russia to develop its own, very fledgling, cross-border transfer system.
To prepare for such a sanction, the Russian government created a National Payment Card System, known as Mir, to process card payments. However, few foreign countries currently use it.
Removing Russia would hurt companies that supply goods to and buy from Russia, particularly Germany.
Russia is the European Union’s main provider of oil and natural gas, and finding alternative supplies will not be easy. With energy prices already soaring, further disruption is something many governments want to avoid.
Companies owed money by Russia would have to find alternative ways to get paid. The risk of international banking chaos is too large, say some people.
Alexei Kudrin, Russia’s former finance minister, suggested being cut off from Swift could shrink Russia’s economy by 5%.
But there are doubts about the lasting impact on Russia’s economy. Russian banks might route payments via countries that have not imposed sanctions, such as China, which has its own payments system.
There is some pressure from US lawmakers for a ban, but President Joe Biden says his preference is for other sanctions, largely because of the hit to other economies and countries.
And a decision to halt Russia’s access would still need the support from European governments, many of which are reluctant because of the possibility of harming their own economies.(BBC)