In Russian sanctions, the West can't bring itself to touch SWIFT

Quick Take

  • The SWIFT payments system has cropped up as a prospective target for sanctions on Russia as it moves further into Ukraine. 
  • As happened in 2014, international — especially European — dependence on Russia’s economy has stalled those plans. 

Western nations have implemented fresh waves of sanctions against Russia as tanks roll across eastern Ukraine. As new sanctions are up for discussion, there is prevailing hesitance to resort to what some have called the nuclear option – a cutoff of Russia from SWIFT. 

The Belgium-based global messaging system for banks, SWIFT is critical infrastructure for any economy hoping to interact with the rest of the world. 

This same argument came up following the Russian annexation of Crimea in 2014. It never went anywhere.

On February 24, Ukrainian minister of foreign affairs Dmytro Kuleba tweeted appeals for the West to cut Russia off from SWIFT in Ukrainian and English on Twitter: 

The US, EU and UK administer the most significant sanctions programs in the world and will also be the key parties to decide on a SWIFT cutoff. Reports from a call between leaders of the G7 indicated that Boris Johnson, prime minister of the UK, was in favor of the move. Within the EU, the proposal remains questionable. While Germany has already agreed to abort the controversial Nord Stream 2 gas pipeline, policymakers are hesitant to boot Russia from SWIFT. Chancellor Olaf Scholz was reportedly explicit that Germany would not support the move, which, alongside backing from several smaller EU nations seems to doom support from the block.

In the US, president Biden addressed the nation as the Treasury announced new sanctions on a range of Russian banks and business. Most notably, those sanctions froze assets belonging to VTB and barred financial institutions from providing correspondent or pass-through accounts to Sberbank, Russia's largest bank.

Biden emphasized the global unity the administration had assembled in its latest sanctions program, which will sanction four additional Russian banks. When questioned on SWIFT, Biden said "the sanctions we've imposed on all their banks will have equal consequence and maybe more consequence than SWIFT." He further suggested that the EU had been the deciding factor in avoiding a SWIFT cutoff up to the present. 

At the same time, Russian markets are in free fall, reporting their worst day on record. The ruble has slipped, and is trading at around 87 to the dollar. The Moscow Stock Exchange announced on the morning of February 24 that it would be pausing all trading, including stocks and foreign currencies. 

Consequently, the time seems ripe for capital flight. However, crypto is not proving to be that venue. Bitcoin is down alongside a broad move towards safe assets. And as of February 24, blockchain forensics firm Chainalysis has seen no abnormal volumes on crypto exchanges based in Russia or Ukraine, the firm tells The Block. 

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.