Russia’s invasion of Ukraine is horrifying. Western leaders, fearing a broader war, are responding primarily with economic sanctions. A prominent economic sanction has been Russia’s exclusion from the international payments messaging system Swift, presented as a powerful means of undermining its economy.
But for a payments expert such as myself, this is something of a myth. Yes, Swift messaging systems are a critical part of international economic activity. They provide extremely secure communications, developed over five decades, dovetailing with the many and varied operations of commercial banks in international transactions. Swift systems would also be a prime target in any cyberwarfare, though thankfully they are well defended.
“It is other measures, such as blocking the central bank of the Russian Federation from transacting internationally, which is undermining confidence in the rouble”
The reality, however, is that limiting access to Swift is less practically effective than most media coverage supposes. It is an important symbol of global repudiation of Russia’s exercise of military force, but not much more. It is other measures, such as blocking the central bank of the Russian Federation from transacting internationally, which is undermining confidence in the rouble.
To understand the limited practical effect of ejection from Swift, it’s worth looking at Iran. The US has applied and periodically reinforced trade prohibitions against Iran ever since 1987. This culminated in Barack Obama’s executive order in February 2011 to freeze all the US assets of Iran’s government, central bank and financial institutions. Iranian banks were ejected from Swift only later, in March 2012. This was only supplementary to direct restrictions on Iranian businesses and financial intermediaries.
Iranian banks could and did still arrange payments in and out of Iran, using banks in third countries that were willing to take a margin on these transactions. That was never easy, with the US authorities imposing fines totalling nearly US$5bn (£3.7bn) on European banks for providing this service to Iran. Exclusion from Swift did not prevent them from doing this.
So what is Swift for exactly?
