Ukraine conflict: What is Swift and why are leaders divided on banning Russia?

Image source, Reuters

The Swift payment network is crucial for the smooth transaction of money worldwide, and the UK repeated calls on Friday for Russia to be banned from it.

Britain wants the Swift system turned off for Russia, according to Defence Secretary Ben Wallace. The Swift system is not in our control. It isn't a decision on its own.

If Russia were to be banned from the system, it would have a negative impact on the country's banking network and access to funds.

Many governments fear that buying oil and gas from Russia would be disrupted, which would hurt their own economies.

It is thought that Germany is not in favor of a Swift ban. Bruno Le Maire said on Friday that the option would only be used as a last resort.

Swift is a global financial system that allows the transfer of money quickly and easily. It's called the Society for Worldwide Interbank Financial Telecommunication.

Swift links 11,000 banks and institutions in more than 200 countries.

Swift is not a traditional bank. It is an instant messaging system that informs users when payments have been made.

trillions of dollars change hands between companies and governments as it sends more than 40 million messages a day.

Russian payments are thought to be involved in more than 1% of the messages.

American and European banks did not want a single institution to have a monopoly and develop their own system.

More than 2,000 banks and financial institutions own the network.

It is overseen by the National Bank of Belgium and is part of a group of major central banks.

Image source, Reuters

Swift helps make international trade possible for its members, but is not supposed to be involved in disputes.

Iran was banned from Swift in 2012 due to sanctions over its nuclear programme. It lost half of its oil export revenues.

Swift doesn't have an influence over sanctions and any decision to impose them is up to governments.

Russian companies would no longer be able to use Swift for smooth and instant transactions. Payments for energy and agricultural products would be disrupted.

Banks would have to deal directly with one another, adding delays and extra costs, and ultimately cutting off revenues for the Russian government.

Russia was threatened with Swift expulsion when it annexed the peninsula. Russia said the move would be a declaration of war.

Russia developed its own cross-border transfer system because of the threat.

The Russian government created a National Payment Card System to process card payments in order to prepare for such a sanction. Few foreign countries use it.

It would hurt companies that supply goods to and buy from Russia.

Russia is the main supplier of oil and natural gas to the European Union. Many governments want to avoid further disruption because of the high energy prices.

Companies that are owed money by Russia would have to find other ways to get paid. Some people say that the risk of international banking chaos is too large.

Being cut off from Swift could shrink Russia's economy by 5% according to the former finance minister.

There are doubts about the impact on Russia's economy. China has its own payments system and Russian banks might route payments there.

President Joe Biden says his preference is for other sanctions because of the hit to other economies and countries.

European governments are reluctant because of the possibility of harming their own economies, so a decision to stop Russia's access would still need their support.