Explained: What is SWIFT, what shutting Russia out of it means

What is the News?

The US and European Union (EU) have decided to exclude some Russian banks from the SWIFT payment system. 

What is SWIFT?

SWIFT system stands for the Society for Worldwide Interbank Financial Telecommunication.

It is a secure platform for financial institutions to exchange information about global monetary transactions such as money transfers.

Click Here to read more about SWIFT

What is the importance of SWIFT?

The crucial role of SWIFT can be known by the fact that when some Iranian banks were cut off from SWIFT in 2012, its oil exports fell sharply from more than 3 million barrels a day in 2011 to about 1 million barrels a day a few years later. 

How could a SWIFT ban affect Russia?

Banning Russian banks from availing of SWIFT services restricts the country’s access to financial markets across the world. It would make it harder for Russian companies and individuals to pay for imports and receive cash for exports.

However, Russian banks could use alternative messaging systems such as phones, messaging apps or email to make payments via banks in countries that have not imposed sanctions. But these are likely to be less efficient and secure, as transaction volumes could fall and costs rise.

How would the SWIFT ban on Russia impact India?

India might face interruption and delay in arms import with Russia. However, there is some relief for India and Russia as their bilateral payments are made in Indian Rupee and sometimes in other currencies like Euro for both imports and exports. So, sanctions may not have a huge impact on the payments.

Source: This post is based on the following articles:

– “Explained: What is SWIFT, what shutting Russia out of it means” published in Indian Express on 28th February 2022.

– “Will the SWIFT expulsion really hurt Russia” published in Livemint on 28th February 2022.