A SWIFT Deterrent

US President Joseph Biden considers a extreme measures to prevent any Russian invasion of Ukraine.

The world community has been keeping a close eye on Russia while the Kremlin has amassed troops on Ukraine’s borders and requested that NATO deny the former Soviet republic membership. The diplomatic escalation has led to high tension between the US and Russia.

In an unusual move, the US floated the idea to block Russia’s access to the SWIFT global interbank payments system. The move is akin to a UN sanction, but involves a trusted and politically neutral financial communication system used by 11,000 banking institutions in 200 countries. The only time Swift disengaged with a country was when the EU blacklisted Iranian banks in 2012.

At press time, US President Joseph Biden was considering the extreme measure to prevent any invasion of Ukraine. On December 7, he warned Russian President Vladimir Putin that the US and its allies would respond with strong economic and other measures in the event of military escalation, according to a video call summary issued by the White House. So far, Biden has not outwardly expressed the SWIFT option, although there are rumors and hints of something like a SWIFT disconnection.

Unlike Iran, Russia has a larger economy that would face greater disruption from such a ban. Any transition to another payment system would likely cause an economic contraction and send the ruble’s value downward.

Russia and other large economies like China have been developing alternative payment systems to blunt such effects. Russia began work on a platform in 2014, when it received similar threats. The resulting System for Transfer of Financial Messages has 400 member banks but is not as robust as Swift and does not operate all day, every day.

“We will survive, certainly, but I don’t think it will come to that,” Andrey Kostin, CEO of Russian bank VTB, told state television channel Rossiya 1. “It would be a very serious measure. ‘Unfriendly’ doesn’t do it justice.”