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Why The UK Wants To Block Russia From SWIFT Payment System While The EU Is Resistant

6 min read

Defence Minister Ben Wallace has claimed the UK is still intent on getting Russia kicked out of the SWIFT international payments system, despite EU leaders blocking the move.

The system, which banks use to make secure cross-border payments, has become a central discussion point among Western allies this week. Many leaders, including Boris Johnson, and US president Joe Biden, see it as a harsh economic measure that could deter Russia from continuing its invasion of Ukraine. 

But at a virtual meeting of G7 countries on Thursday, world leaders failed to get consensus on banning Russia from the organisation. Johnson has has said the proposed ban is still being on the table but European leaders were less resolute. 

Dutch prime minister Mark Rutte admitted that “many colleagues pleaded for it” but said that “more work needs to be done to assess what happens if Russia is cut off”.

Defence Secretary Ben Wallace is one of the powerful voices in the UK still pushing for the sanction. On Friday he told BBC Radio 4's Today Programme that the government will "work all day" to try to get the SWIFT international payment system "turned off for Russia”.

"There are still meetings today about this," another minister told PoliticsHome today. "It would hit them hard and it's one of the more powerful tools."

What is SWIFT?

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication and was set up in the 1970s with its headquarters in Belgium.

It is a messaging system that banks use to make rapid and secure cross-border payments and over the years it has become a vital tool for international trade.

Last year 11,000 SWIFT member institutions sent an average of 42 million messages per day through the network and it facilitates trillions of dollars' worth of deals. It does not hold or transfer funds.

Who owns SWIFT?

The organisation is a co-operative model and currently made up thousands of member institutions. When it was set up in 1973, 239 banks from 15 countries signed up to devise a cross-border payments system, and their unique messaging system went live in 1977, replacing older Telex technology. 

It remains neutral in trade disputes, though Iran was banned from using its services in 2012 and has an operating centre in Switzerland. 

What impact would a SWIFT ban have on Russia?

This is a highly debated topic and the reason the G7 could not reach agreement yesterday.

Blocking Russia from SWIFT would undoubtedly harm their ability to carry out international financial transactions and result in importers, exporters and banks in having to find new ways to transmit payment instructions.

It could slow Russia's economy by making everyday transactions far harder to achieve.

Why is the EU resistant to the ban?

Due to the EU being heavily reliant on Russian energy, there is concern that cutting them off from SWIFT would make it harder to do essential business with Russia. Many countries also rely on wheat exports from Russia and so may also be concerned about cutting them out of the system. 

Austrian Chancellor Karl Nehammer believes removing Russia from SWIFT would actually hurt the EU economy more than harm Russia. He said "the suspension of SWIFT would affect the Russian Federation less than the European Union", arguing Moscow could use its "own payment system, and it would immediately switch to Chinese payment systems".

It is also understood Russia has been working on an in-house messaging system that could mitigate being cut off from SWIFT.

Why is the UK so much in favour or banning Russia from SWIFT?

While EU leaders have been reluctant to push for Russia to be banned from SWIFT, both Boris Johnson and Labour leader Keir Starmer are aligned in it being the toughest economic sanction still at their disposal.

The UK economy is naturally more sheltered from any fall out from Russia not being able to use the service. For example, it doesn't rely on Russian gas exports which are likely to be paid for using the SWIFT system, and this may explain why the UK is still pushing hard for a ban, while Germany is less keen.

Labour leader Starmer said ending Russia's membership of SWIFT would be among the "hardest possible sanction[s]" while the Secretary of State for Defence, Ben Wallace, said it is something still worth exploring to impact the Russian economy and will be raised at international meetings today.

Why have G7 leaders still not come to an agreement on banning Russia from SWIFT?

In a White House briefing on Thursday, US President Joe Biden said removing Russia from Swift was "always an option but right now that's not the position that the rest of Europe wishes to take”.

However, he is not believed to have raised the issue on Thursday's G7 call, and there are suggestions the US has only offered lukewarm support for the move due to fears Moscow would join forces with China to create a rival payment system which did not use the US dollar.

Several European countries are believed to also have reservations, including Italy, Austria and Germany, whose Chancellor Olaf Scholz was reported to have said certain measures should be "for a situation where it is necessary to do other things as well" when asked about SWIFT.

Polish Prime Minister Mateusz Morawiecki has said that "many leaders share the view that Russia needs to be excluded from the SWIFT system" but accepts that all countries involved must agree unanimously that the sanction should go ahead. 

But Ukraine's foreign minister Dmytro Kuleba tweeted those who opposed Russia being blocked from the SWIFT payment system “has to understand that the blood of innocent Ukrainian men, women and children will be on their hands”.

Irish minister Thomas Byrne confirmed Dublin backed calls to remove Russia from SWIFT at an EU summit on sanctions, but said the important thing among member states is unity.

"Our priority as an Irish Government was to have unity around the table. That was very, very important,” he told Irish broadcaster RTE.

What happens next?

A readout of a Thursday call between Scholz and Johnson showed the Prime Minister directly complained about Germany's stance on SWIFT, and that he would continue efforts to persuade countries not yet in favour of removing Russia from the system. 

“The prime minister underscored that western inaction or under-reaction would have unthinkable consequences,” a Downing Street spokesperson said. 

It is expected tha Johnson will raise the issue again when he meets with NATO leaders on Friday. 

The former European Council president Donald Tusk also said today that that some EU governments had “disgraced themselves” by refusing to impose the toughest possible economic sanctions on Russia.

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