Recently, countries in the West have been demanding that Russia be removed from SWIFT. Russia’s attack on Ukraine has prompted Western nations to push for a ban on Swift, a messaging service linking financial institutions around the world, intending to prevent it from making any payments.
The United Nations, the European Union, the United Kingdom, and Canada have all issued statements saying Russia has fought a war with its neighbor and will remove some Russian banks from Swift.
What is Swift?
SWIFT is short for ‘The Society for Worldwide Interbank Financial Telecommunication’. In simple terms, Swift is a payment system based on a messaging service.
Which connects banks and financial institutions around the world. In 1973, banks and financial institutions around the world began secretly sending secure messages and payment orders to each other.
The Swift system is behind the easy transfer of money abroad. It is a huge messaging network, used to exchange information between banks and other financial institutions, such as instructions on how to transfer money quickly and securely.
Under this system, financial institutions securely transmit payment information and orders using electronic codes.
How does it work?
Swift assigns each financial institution an eight- or 11-digit special code. Also known as Bank Identifier Code (BIC), Swift Code, Swift ID, or ISO 9362 code.
The other two letters ‘KA’ are from the city’s postal code. Now if someone has to send money from a US bank to Everest Bank, they have to give the same code.
Bank of America sends a message to the bank of Nepal to pay the money to the person concerned with that code and the person concerned receives the money based on this code.
Today, 11,000 banks and financial institutions around the world are connected to Swift. Banks and financial institutions around the world use Swift to provide instruction on how to transfer money to each other, rather than transacting money from one place to another.
Swift was launched to keep the global financial market moving. This means that depriving a country of this system is an alternative to restricting economic activity.
This is because no bank can conduct its financial transactions as soon as Swift is banned. Not only do they send money to banned banks, but their customers are also unable to do business.
This could have a major impact on the financial performance of Russian banks. Banning all banks would have a huge impact, so only a limited number of banks would be banned.
Earlier in 2012, some Iranian banks were also banned from Swift. As a result, Iran’s oil export earnings fell by half and foreign trade lost 30 percent.