What is the Swift system and why excluding Russia from it would be “the financial nuclear weapon”

With the invasion of Ukraine the possibility of excluding Russia from the Swift International Payment System, key to economically isolating the country, since it would allow Russian financial entities to be blocked from transactions with the rest of the world.

The use of Swift “it is the financial nuclear weapon”, as described by the French Minister of the Economy, Bruno Le Maire. In other words, it is one of the most damaging economic measures that can be adopted against a country. As explained by the international expert from eitb.eus Philip Etxebarria“Without this security system, no financial transaction can be carried out with guarantees.. Therefore, its role in the global financial system is central.”

But what exactly is Swift? The Society for World Interbank Financial Telecommunicationbetter known by its acronym Swift, is a platform based in Belgium that connects some 11,000 financial institutions around the world and works as a messaging system to report financial transactions, with which it has become a fundamental pillar of the system international financial.

The main reason Swift is often known is as an international code that provides its members with an encrypted messaging service that enables international fund transfers.

Specifically, Swift determines the bank codes, known as BICs, that are required to make or receive an international transfer. The BIC code, an acronym for Bank Identifier Code, is used to identify the beneficiary bank of a transfer and is an international alphanumeric code that can consist of 8 or 11 characters.

The 8-character code includes information on the entity, each country and the locality. And that of 11, in addition to all of the above, includes the specific information of a branch.

When a client makes an international transfer in favor of another, the issuing bank generates an encrypted message, that BIC or Swift code, which indicates how the funds will be delivered to that client, with all kinds of details such as dates, currencies , expenses or through which entities.

It is the proof of the irrevocable realization of an international transferand provides security and information to the receiver.

What would happen if Russia is excluded

If Russian financial institutions were left out of the Swift system, their banking operations would be seriously complicated because they could not make international charges or payments with the rest of the entities that use this system.

For all purposes, there would be a blockade of bank transfers with the country, which in turn would have collateral effects since any foreign company that needs to make payments in Russia would not have the option to do so in this way.

Martín Piqueras, professor at OBS Business School and expert in digital strategy at Gartner, also warns that Russia would try to find alternatives so that its banks can continue making international transfers if they are expelled from Swift.

For example, he notes, Russia could turn to the China International Payments System, known as CIPS, which began operating in 2015 with 19 Chinese and foreign banks settling in mainland China and 176 indirect participants covering six continents and 47 countries. and regions.

This alternative offers its participants payments and international transfers in yuan.

Hence the decision to expel Russia from the Swift system cannot be taken lightly And even if the EU countries finally request it, it will have to be the committee of this society that decides, since it is the one that has the right to expel or incorporate its members.

In late 2018, Swift decided to suspend access to its system to several Iranian banks after the United States reinstated sanctions against Tehran.