The European Commission, Germany, Canada, Britain, Italy and the US imposed sanctions upon Russia over the weekend. The most important financial sanction arguably is excluding select Russian banks from Swift, a global financial transaction messaging system.

Swift (Society for Worldwide Interbank Financial Telecommunication) is the global financial messaging system used in more than 200 countries by 11, 000 banks and institutions. Swift’s main purpose is to serve as the main messaging network through which international payments are initiated. Created in 1973, Swift can be explained, in simple words, a sort of instant messaging system that informs users when payments are sent through and arrive.1

The National Bank of Belgium mainly oversees it with the help of other financial institutions around the world, however, when it comes to sanctions, Swift claims that they have no influence and all decisions lie with governments.

The Russian Government did, however, develop their own payment system called Mir, after the imposition of international sanctions in 2014, following Russia’s annexation of Crimea. At this time, the Russian Government was threatened by Western allies for the loss of access to Swift. Few other countries use Mir, but it is successful amongst companies with operations in Russia. In 2016, AliExpress became the first foreign company to accept Mir as a payment method and McDonald’s was the first US company to accept it three months later, within the Russian Federation.

However, exclusion from Swift will considerably affect the Russian economy. Alexei Kudrin, Russia’s former finance minister suggested Russia’s economy could shrink by 5%. Moscow is bracing for economic turbulence for Monday morning, with major Russian banks such as VTB Bank and Sberbank already assuring customers they will be able to exchange Ruble deposits to dollars and euros and other foreign currencies. There have also been videos circulating on social media depicting the long lines at Russian ATMs this morning.

Other sanctions imposed upon Russia include a significant portion of £470bn ($630bn) of assets from the Russian Central Bank being frozen, and foreign assets of sanctioned individuals, President Putin, his Foreign Affairs Minister Sergei Lavrov, the rest of his Security Council, and 11 other named officials.

Some countries, however, such as Germany and France had been reluctant to exclude Russia from Swift as Russia is the EU’s main provider of oil and natural gas. With the price of energy already high and still increasing, and finding another source of energy not being the easiest task, governments want to avoid further disruption.

 

References:

https://www.bbc.co.uk/news/business-60521822

https://www.theguardian.com/business/2022/feb/27/ukraine-moscow-braces-for-market-meltdown-monday-as-new-sanctions-hit

https://theconversation.com/just-short-of-nuclear-the-latest-financial-sanctions-will-cripple-russias-economy-178000

https://en.wikipedia.org/wiki/Mir_(payment_system)