(CU)_On Saturday, the leaders of the US, UK, EU, Canada and several other large emerging economies from the West announced its decision to remove selected Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT), in response to President Vladimir Putin’s “war of choice” and attacks on neighboring Ukraine. The move has been dubbed as the West’s financial “nuclear option”, but how effective will it be in punishing the Russian leader?
SWIFT is the co-operative network on which financial institutions and economies around the world have come to rely on. It is part of the global financial system, processing over 40 million messages between 11,000 institutions, as bankers key in unique codes into their computers to send encrypted instructions to their counterparts to complete financial transactions. “It really is the difference between a rocket ship to the moon and a horse and buggy,” Clifford Sosnow, chair of Fasken Martineau DuMoulin LLP’s international trade group, said. “If we don’t have that platform, our economy is just not going to function.”
Accordingly, the decision to exclude Russia from the network is expected to have a significant impact on the country’s economy. “This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally,” the western allies said in a statement.
The decision came after divisive negotiations, with some countries like Germany expressing concern over the effects of such measures on their own trade or currencies. This is owing to the fact that alternative systems, and “clunky”, according to Sosnow. Banishing Russian banks from SWIFT is expected to eat into the profits of Russian exports, even if Moscow manages to cobble together an alternative to handle their bulk of banking and trade transactions. “Internationally (there are) not really too many alternatives for money transfer,” Karina Cheplinger, former member of Bank of Nova Scotia’s international payment operations team, said.
