The European Union, US, UK, and allies have agreed to exclude a number of Russian banks from Swift, an international payment system used by thousands of financial institutions. The move aims to hit the country's banking network and its access to funds via Swift, which is pivotal for the smooth transaction of money worldwide. Swift is the global financial artery that allows the smooth and rapid transfer of money across borders. Created in 1973 and based in Belgium, Swift links 11,000 banks and institutions in more than 200 countries.
It sends more than 40 million messages a day, as trillions of dollars change hands between companies and governments. Swift was created by American and European banks, which did not want a single institution developing their own system and having a monopoly. The network is now jointly owned by more than 2,000 banks and financial institutions. At this stage, it is not known which Russian banks will be removed from Swift.
The statement from the EU, the US, the UK, and others said the move would "ensure that these banks are disconnected from the international financial system and harm their ability to operate globally". The aim is for Russian companies to lose access to the normally smooth and instant transactions provided by Swift. Banks would be likely to have to deal directly with one another, adding delays and extra costs, and ultimately cutting off revenues for the Russian government. To prepare for such a sanction, the Russian government created a National Payment Card System, known as Mir, to process card payments.
Russia is the European Union's main provider of oil and natural gas, and finding alternative supplies will not be easy. Companies owed money by Russia would have to find alternative ways to get paid. Russian banks might route payments via countries that have not imposed sanctions, such as China, which has its own payments system.