Description

The United States and the European Union (EU) have decided to use economic penalties to partially execute their nuclear-weapons option. SWIFT, the world's most significant payment network, has disconnected a number of Russian financial institutions. Central banks' assets are also anticipated to be blocked, limiting Moscow's access to its foreign reserves. These are the strongest penalties imposed on Moscow since its forces invaded Ukraine, and they are expected to have a significant impact on a nation that significantly relies on the SWIFT infrastructure for important natural resource transactions, notably payments for oil and gas exports. In the financial industry, disconnecting a country from SWIFT is akin to banning a country's Internet connection.

What exactly is SWIFT?

SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a secure infrastructure that allows financial institutions to transmit information about worldwide monetary operations such as money transfers.

While SWIFT does not directly move money, it serves as a middleman for over 11,000 institutions in over 200 countries, providing secure financial communications services. It is headquartered in Belgium and is governed by central banks from eleven industrial countries: Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.

What is the goal of this?

Since the previous wave of sanctions in 2014, Moscow has been building up a foreign currency buffer, with reserves reaching a record high of $630 billion in January 2022. According to analysts, the new limitations will considerably reduce the funds available to the country's central ban.

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