What is SWIFT? How badly cutting off Russian banks could affect Moscow?

New Delhi, Feb 27: The European Union, along with the United States and other Western partners, on Saturday announced its decision to disconnect Russian banks from the SWIFT international financial system, in the wake of Russia's invasion of Ukraine.

According to a joint statement issued by the leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada, and the United States, the decision to remove selected Russian banks from the SWIFT messaging system will harm the banks' ability to operate globally. SWIFT is a global member-owned cooperative and the world's leading provider of secure financial messaging services.

What is SWIFT?

SWIFT, The Society for Worldwide Interbank Financial Telecommunication (SWIFT), legally S.W.I.F.T. SC, is a Belgian cooperative society providing services related to the execution of financial transactions and payments between banks worldwide. Its principal function is to serve as the main messaging network through which international payments are initiated. It also sells software and services to financial institutions, mostly for use on its proprietary "SWIFTNet", and ISO 9362 Business Identifier Codes (BICs), popularly known as "SWIFT codes".

Established in 1973, SWIFT finds a better way for the global financial community to move value - a reliable, safe and secure approach that the community can trust, completely, according to the official website of SWIFT.

The SWIFT messaging network is a component of the global payments system.SWIFT acts as a carrier of the "messages containing the payment instructions between financial institutions involved in a transaction."[5] However, the organization does not manage accounts on behalf of individuals or financial institutions, and it does not hold funds from third parties.

It also does not perform clearing or settlement functions. After a payment has been initiated, it must be settled through a payment system, such as TARGET2 in Europe. In the context of cross-border transactions, this step often takes place through correspondent banking accounts that financial institutions have with each other.

As of 2018, around half of all high-value cross-border payments worldwide used the SWIFT network, and in 2015, SWIFT linked more than 11,000 financial institutions in over 200 countries and territories, who were exchanging an average of over 32 million messages per day (compared to an average of 2.4 million daily messages in 1995).

Though widely utilized, SWIFT has been criticized for its inefficiency. In 2018, the London-based Financial Times noted that transfers frequently "pass through multiple banks before reaching their final destination, making them time-consuming, costly and lacking transparency on how much money will arrive at the other end".[9] SWIFT has since introduced an improved service called "Global Payments Innovation" (GPI), claiming it was adopted by 165 banks and was completing half its payments within 30 minutes.

As a cooperative society under Belgian law, SWIFT is owned by its member financial institutions. It is headquartered in La Hulpe, Belgium, near Brussels; its main building was designed by Ricardo Bofill Taller de Arquitectura and completed in 1989. The chairman of SWIFT is Yawar Shah[12] of Pakistan, and its CEO is Javier Pérez-Tasso of Spain. SWIFT hosts an annual conference, called Sibos, specifically aimed at the financial services industry.

How will the Removal Of Russian Banks From SWIFT affect Russia?

The country's economy could be damaged right away, as a result of being disconnected from SWIFT. Also, this move would cut Russia off from an array of international financial transactions, including international profits from oil and gas production, according to an article published by American news broadcasting company USA Today