US and Europe will block some Russian banks from SWIFT

Photo by Stanislav KrasilnikovTASS via Getty Images

A coalition of NATO-aligned countries has committed to new measures meant to sever Russia from the global financial system. A letter signed by the United States, UK, Canada, and European allies states new measures to isolate Russia's central bank and announces a new trans-Atlantic task force to freeze the foreign assets of individuals who have been sanctioned.

The order blocks select Russian banks from using the international payment system used by banks to send money around the world.

Many of Europe's largest banks are owners of the cooperative company, which stands for The Society for Worldwide Interbank Financial Telecommunication. The payments network does not exchange money, but is used to verify payment instructions between banks. 42 million exchanges are processed by its services each day.

It's difficult to say what the political and military situation in Ukraine will be like after the expulsion of SWIFT, but the move will be painful for Russian banks and markets, which have already been targeted by various financial sanctions.

The Carnegie Moscow Center think tank said in a comment article that Russia would be hit particularly hard if it were to be kicked out of SWIFT.

The order does not impose a total ban on Russian access to SWIFT, but it does promise to remove selected Russian banks from the messaging system.

Iran's oil exports were reduced by half when it was kicked out of the network in 2012 because it destroyed almost all of the country's value. Iran's banks were reconnected to the international payment network in the year 2016

Russia has been preparing for this for a long time. In response to the country's incursions in the Donbas region, Russia set up its own domestic alternative to SWIFT, the System for Transfer of Financial Messages, or SPFS. The Cross-Border Interbank Payment System is operated by China. The support or international acceptance of SWIFT is not enough to provide alternatives in the long run.