Explained | What is SWIFT and why is Russia being threatened with exclusion from the service?

SWIFT is a messaging network used by banks and financial institutions globally for quick and faultless exchange of information pertaining to financial transactions

The U.S., Europe and several other western nations are moving to exclude Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), an international network for banks worldwide to facilitate smooth money transactions globally. This could be the strongest economic sanction against Russia over its military moves in Ukraine, as it will potentially cut off the country from receiving international payments.

SWIFT is a messaging network used by banks and financial institutions globally for quick and faultless exchange of information pertaining to financial transactions. The Belgium-headquartered SWIFT connects more than 11,000 banking and securities organisation in over 200 countries and territories.

Each participant on the platform is assigned a unique eight-digit SWIFT code or a bank identification code (BIC). If a person, say, in New York with a Citibank account, wants to send money to someone with an HSBC account in London, the payee would have to submit to his bank the London-based beneficiary’s account number along with the eight-digit SWIFT code of the latter's bank. Citi would then send a SWIFT message to HSBC. Once that is received and approved, the money would be credited to the required account.

SWIFT is merely a platform that sends messages and does not hold any securities or money. It facilitates standardised and reliable communication to facilitate the transaction.

If a country is excluded from the most participatory financial facilitating platform, its foreign funding would take a hit, making it entirely reliant on domestic investors. This is particularly troublesome when institutional investors are constantly seeking new markets in newer territories.

An alternative system would be cumbersome to build and even more difficult to integrate with an already expansive system. SWIFT, first used in 1973, went live in 1977 with 518 institutions from 22 countries, its website states. SWIFT itself had replaced the much slower and far less dynamic Telex.

Iranian banks were ousted from the system in 2018 despite resistance from several countries in Europe. “This step, while regrettable, was taken in the interest of the stability and integrity of the wider global financial system, and based on an assessment of the economic situation,” SWIFT states on its website.