By Dr Alistair Milne, PhD, Loughborough University — The Conversation, 28 February 2022
Russia’s exclusion from the international payments messaging system Swift has been presented as a powerful means of undermining its economy in response to the invasion of Ukraine. But for a payments expert, this is something of a myth. Yes, Swift messaging systems are a critical part of international economic activity, providing extremely secure communications for instructing and monitoring interbank payments and trade finance. However, limiting access to Swift is less practically effective than most media coverage supposes. It is an important symbol of global repudiation of Russia’s exercise of military force, but not much more.
The key point is that Swift handles messages — it has no role in payment execution. A London bank wanting to send funds to a bank in Moscow may use Swift messaging to communicate the payment, but not to execute it. The actual execution can be done in various other ways. There is no fundamental problem with transferring funds using some other secure messaging system. Russian banks might instead use the SPFS system established by the Russian central bank after the 2014 invasion of Crimea, or the CIPS network created by the People’s Bank of China. Looking at Iran as a precedent, Iranian banks could and did still arrange payments after being ejected from Swift in 2012 — using banks in third countries willing to take a margin on transactions, albeit at greater cost.
The reality is that other measures, such as blocking the central bank of the Russian Federation from transacting internationally, are what is truly undermining confidence in the rouble. Ejection from Swift is a symbol of these efforts, not a powerful economic tool that can constrain Russia’s actions in Ukraine at little cost to ourselves. Wide-ranging economic sanctions may be needed for a lengthy period of time. This article has been republished under Creative Commons licence.