Russian banks expelled from Swift payments system
Britain, the EU, US and Canada have made a decisive move to isolate Russia’s banks by denying them use of Swift, one of the world’s international payment systems.
Russia is heavily reliant on the Swift system for its key oil and gas exports. The assets of Russia’s central bank will also be frozen, limiting Russia’s ability to access its overseas reserves.
Swift – Society for Worldwide Interbank Financial Telecommunication – was set up in 1973 as a secure messaging system that allows around 11,000 financial institutions to talk to each other and authorise payments. It handles about 40 million transactions each day.
Run as a co-operative by 2,000 member banks, it is based in Belgium and a decision to block Russian banks from using the system required joint agreement.
The action represents a major international sanction on Russia over its invasion of Ukraine.
Russia’s banks responded by saying they could use other channels such as messaging apps, cryptocurrencies, and by routing payments via countries that have not imposed sanctions.
Germany had resisted a ban and US President Joe Biden was said to be concerned that it might be damaging to those who continue to source supplies from Russia, such as oil and gas.
However, it has proved effective in the past. Iran has been expelled, resulting in it losing 30% of its foreign trade.
Meanwhile, the conflict has hit a string of deals. City bankers said the bond market had largely dried up, with one saying there had not been a single major bond issue since the invasion.
Plans for stock market flotations have also been put on hold as investors become risk averse.