The West has made it clear that their response to the Russian invasion of Ukraine will be utilizing every possible economic tool and pressure Moscow to stop its military operation and sit down for negotiations.
Speaking the language of sanctions, all Western countries have been taking a series of steps that can achieve the isolation of Russia apart from the rest of the world, so the invasion of Ukraine stops.
Amongst the many decisions that have been taken to punish Russia was cutting its banks from the biggest global financial system known as SWIFT.
Germany, the United States, France, Canada, Italy, Great Britain and the European Commission agreed to cut Russia out of the SWIFT global payment system and include limiting the ability of Russia's central bank to support the rouble https://t.co/m2tkvpMT9v pic.twitter.com/iwmE14XxmB
— Reuters (@Reuters) February 27, 2022
Founded in the early 1970s in Belgium, the Society for Worldwide Interbank Financial Telecommunication system is a cooperative banking tool, through which more than 11,000 banks and financial institutions in 200 countries can communicate directly and securely and send more than 42 million transactions a day.
However, the scale and reliability of SWIFT have granted it an extremely significant position in the global financial system that it has been called the "financial nuclear weapon".
Without this system, banks have to communicate directly and waste more money and time as they process relatively less secure money transactions.
In the past, Iran was cut off the SWIFT system in 2012 following sanctions placed by the European Union, in punishment for the country's advanced nuclear program before sanctions were lifted in accordance with the 2015 Joint Comprehensive Plan of Action. Similar decisions were taken in 2018 after the agreement was revoked by the former US administration of Donald Trump.
Now, Russia is being targeted with this procedure for the first time, which will only create more obstacles for its strongly hit economy. Assets of Russian banks, businesses, and oligarchs have also been frozen by Western countries, which are all measures meant to make things worse for the country currently at war with Ukraine.
Demonstrators hold placards reading "People die, Scholz watches" (2ndR), "No SWIFT for Russia" and "Turn off SWIFT" (R) during a protest against Russia's invasion of the Ukraine on February 25, 2022 in front of the Chancellery in Berlin. (Photo by John MACDOUGALL / AFP)
Russia has been expected to explore other options to maintain its economy, such as decentralized crypto and blockchain technologies, which in theory can help it avoid the financial damage resulting from this SWIFT move. However, experts explain that sanctioned Russian banks, entities, and individuals will still be blocked the moment they use digital cryptocurrencies since these advanced technologies can easily track their geographical addresses, which means that evading sanctions will only get more complicated for Russia and its businesspeople who are increasingly isolated from the rest of the world.
These amounting difficulties faced by Russia as it tries to maintain its ability to finance the current war could explain the Western confidence in the effectiveness of sanctions in ending the military invasion, as opposed to unguaranteed military confrontations.
