On Saturday, 26 February. the US, the EU, the UK and other allies banned the Russian Central Bank and the key banks in Russia from participating in the largest worldwide banking transaction message network – SWIFT. This will be a major hit to the Russian economy, affecting millions of domestic and foreign transactions.
Immediately on Sunday, Russians queued in massive lines to withdraw as much foreign currency as they could. By the end of the day, most Russian banks had put a stop to foreign currency withdrawals and only rubles were left. By late Sunday, a number of ATMs had run out of cash.
By Monday, 28 February, SWIFT’s ban had its intended effect. The ruble fell 40% immediately but by the end of the day there had been actions by the Russian Central Bank to prop up the ruble. But even with their actions, at the end of the day, the ruble had lost 28% of its’ value. The Russian stock market was closed on Monday and Russian interest rates were increased from 9-5% to 20% in an effort to stem withdrawals. However, ordinary Russians are already in a panic about access to cash and the immediate increase of prices for everyday items.
SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication – and is a second level (institutions rather than individuals) co-operative set up in Belgium under Belgium’s co-operative law. SWIFT was originally formed in 1973 by 239 financial institutions in fifteen countries, and grew dramatically. By 2022, SWIFT linked over 11,000 financial institutions in more than 200 countries. It isn’t the only system, but as it carries 41% of all transactions, it has a major impact. Planning to avoid political sanctions of the Ukraine nature, the Chinese Government is building its own system; at this time it does not have the reach of SWIFT but it is where Russian banks may transfer their activity.
In 2021, SWIFT recorded an average of 42 million payment messages per day. Traffic grew by +11.4% versus the same period of the previous year. SWIFT is governed by a board of 25 elected members who all serve without compensation, although their travel expenses are covered by SWIFT.
According to the bylaws of the co-operative:
- For each of the first six nations ranked by number of shares, the shareholders of each nation may collectively propose two Directors for election. The number of Directors proposed in this way must not exceed 12.
- For each of the ten following nations ranked by number of shares, the shareholders of each nation may collectively propose one Director for election. The number of Directors proposed in this way must not exceed 10.
- The shareholders of those nations which do not qualify under 1. or 2. above may join the shareholders of one or more other nations to propose a Director for election. The number of Directors proposed in this way must not exceed 3.
There can, however, be no more than 25 members of the board.
SWIFT’s head office is in La Hulpe, Belgium, just outside of Brussels, and it employs 3,000 people to run the extensive and busy worldwide message network.
A week or so ago, SWIFT was being mentioned as a standby tool to impact Russian economic activity. Some countries were concerned about the impact of excluding Russia might have on their own economies. Now, on the sixth day of the Russian invasion of Ukraine, the world is watching a 24-hour-televised-war. The vivid images of daily Russian military aggression on a peaceful people have convinced the recalcitrant countries to approve banning Russia from SWIFT.
Kicking Russia out of the SWIFT co-op might just help bring an end to the Russia invasion of Ukraine.
