Tribune. The shutdown of Russian banks from the Swift messaging system (an acronym for the Society for Worldwide Interbank Financial Telecommunications) since March 12 has been described in the press as “one of the most powerful tools available to Western authorities to punish Russia.” But while shutting down Russian banks from the grid could send a strong political signal, the economic impact of the measure itself may not be as effective as it is claimed to be.
Swift is a network of over eleven thousand financial institutions in over two hundred countries. Since its inception in 1973, Swift has become synonymous with international payments. But it is important to note that Swift does not process payments, store or transfer funds: it only allows the exchange of secure payment-related messages between its participants. The actual payments are processed by the banks, not by Swift.
No national impact
It should also be noted that currencies are closed systems. When a transfer is made abroad, the currency is not physically transferred abroad. Instead, banks provide accounts to their foreign partners and maintain their own accounts with their foreign partners. Banks rely on a network of “correspondent relationships”, which involves using multiple banks to ensure that a payment reaches the intended account holder.
This network allows banks to make payments in foreign currencies. Other payment service providers, such as money transfer agents such as PayPal or Wise, and new financial technology providers also use the interbank network. Swift is the infrastructure behind the correspondent banking network.
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However, the impact of the ban on Russian banks may not be as significant as expected.
First, because Swift is a messaging system, money transfer messages can be sent using other, albeit potentially less secure, networks, including instant messaging or plain old fax.
Secondly, the Swift exclusion does not affect the domestic Russian banking sector. In 2014, the Central Bank of Russia introduced the National Payment Card System (NSPK), through which all domestic payments pass. Russia also created a national payment card network, Mir, in late 2015, under the influence of US and European sanctions related to the annexation of Crimea.
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