This blog is about Swift, I don’t use it but you may – so skip the explanation if you do – it’s for the non-bankers among us!
With the rapid deterioration of the Russia/Ukraine situation, you’re going to hear a lot about SWIFT in the coming days…
Here’s a quick breakdown of what it is and why it matters:
— Sahil Bloom (@SahilBloom) February 24, 2022
Today, SWIFT connects more than 11,000 financial institutions across 200+ countries.
Think of it like a simple email system enabling secure messages across its members.
An average of 40 million messages a day—including orders, payment confirmations, FX exchanges, and trades.
— Sahil Bloom (@SahilBloom) February 24, 2022
This happened in 2012 with the sanctions package on Iran in retaliation for it’s nuclear program.
It was looked at in 2013-14 in response to Russia’s actions in Crimea.
Cutting off SWIFT access is viewed as a VERY significant move, so the consideration alone is material.
— Sahil Bloom (@SahilBloom) February 24, 2022
It is a key energy supplier to Europe and the world.
It is an exporter of materials critical to the manufacturing of jet engines, semiconductors, automotives, electronics, and fertilizers.
Cutting off Russia from SWIFT would impact the flow of payments for these industries.
— Sahil Bloom (@SahilBloom) February 24, 2022
A cutoff from SWIFT may also have longer-term second-order effects on Bitcoin and non-fiat currencies.
The base logic: Russia may seek to circumvent the impact of the restrictions via a combination of its in-house system and a push away from the USD-reserve currency hegemony.
— Sahil Bloom (@SahilBloom) February 24, 2022
For more:https://t.co/3m24Ck1Twm https://t.co/ftoENoeBEP
— Sahil Bloom (@SahilBloom) February 24, 2022
The decision the world has to take
I am pleased to see the strong position that Britain seems to be taking on this.
It seemed that Swift wasn’t on Joe Biden’s shopping list of US sanctions . My contacts tell me that it is Germany and Italy who are resisting expulsion from SWIFT not Biden. They also tell me that the Russian banks can work around it now using the Chinese CIPS system – but expulsion would none the less make things a lot more difficult (and probably expensive – the Chinese won’t do it for free).
Biden’s speech last night was, as I expected, as much about reassuring Americans they would not feel pain from sanctions as assuring the Russian authorities they would. Which sent out mixed messages to the world about just how committed the USA is to isolating Russia and making their continued occupation of Ukraine uncomfortable.
War is a pretty harsh business and it’s consequences are felt by markets. The German , Italian and American people may feel that it has no reason to suffer economically to prevent Russia’s expansion. The price at petrol pumps seems to have become a benchmark of sentiment as much as the price of gas in Europe.
Let’s hope that the message Russia gets is unified and that Biden puts his foot down on Swift. Half-hearted responses to what is going on in Ukraine will be seen as weakness, and that will fan the fires of Vladmir Putin’s intent.