Removing Russia from SWIFT – The Nuclear Option

Guest Post by Martin Armstrong

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is employed by over 11,000 institutions across 200 countries and serves as the messaging domain for financial institutions to exchange funds. This crucial tool was implemented to replace the Teleprinter Exchange, known as Telex, back in 1973 as the Telex system became technologically obsolete. SWIFT has also become a leverage tool for sanctions as the United Nations and member states may limit access to the network to enforce international law.

It happened to Iran from 2012 to 2016 under the Obama Administration due to Iran’s nuclear program with measures reimplemented down the line. The idea was to cut off Iran’s banking system to outside funds, leading to coercion by economic pressure. Abdolnaser Hemmati who was at the head of Iran’s central bank said, “We were expecting these sanctions, so we had plans in place for them and beyond … considering the possibility of banks being disconnected from SWIFT we have considered alternatives to replace it.” Former US Treasury Steven Mnuchin threatened to sanction SWIFT itself if they did not comply. “SWIFT is no different than any other entity. We have advised SWIFT that it must disconnect any Iranian financial institutions that we designate as soon as technologically feasible to avoid sanctions exposure,” Mnuchin threatened.

Iran was already isolated from most global financial networks at the time, but now the idea of cutting off Russia is being touted in Washington. Kurt Volker, former United States Special Representative for Ukraine Negotiations, deemed removing Russia from the SWIFT system as the “nuclear option.” He says this with good reason. The measure was considered when Russia annexed Crimea, but Russia said they would not simply comply. Prime Minister Dmitry Medvedev assured the public that removing Russia from the SWIFT system “would in fact be a declaration of war.”

Removing Russia from SWIFT would hurt its trading partners. First, it will spook the markets and the uncertainty will lead to volatility. International companies conducting business with Russia would be forced to halt many transactions. Investors may rush out of the ruble, disrupting international capital flows. The EU heavily relies on Russian energy and retaliatory measures could spell disaster.

Russia has quietly been developing its own version of SWIFT since 2014 called the System for Transfer of Financial Messages, which now delivers around 20% of domestic transfers. However, the Kremlin will likely not accept removal from the SWIFT system as Iran did and this measure could very well be considered a declaration of war.

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Rossa
Rossa

Russia has already said if they are barred from using SWIFT, they will not export oil, gas or metals to any country that uses SWIFT. It would ‘swiftly’ bring Europe to its knees.

Arizona Bay
Arizona Bay

Don’t forget grain. Ivan is the world’s largest grain exporter. I’m sure the Chinese will gladly accept Ivan’s raw materials that won’t be shipped to europe.

This will only accelerate the Death of the Dollar.

Anonymous
Anonymous

I would assume that at this point, Russia, etc. are all prepared for being removed. Not that there won’t be shock and pain, but I’m sure they have prepared.

GNL
GNL

That has been discussed a few times before here on TBP. Russia and China were supposedly near completion or their own SWIFT type financial transaction technology. Maybe someone will chime in.

Anonymous
Anonymous

the biggest issue is that people dont know what SWIFT is or how these transfers work. Very loosely consider a transaction on a bank card. You make a purchase and these are often settled by end of day. What occurs is the store’s bank contacts your bank (this happens in bulk usually-many transactions) and says you made a purchase. Your bank verifies the amount and says you are good to go. The money however doesnt transfer yet. The initial acknowledgement is only the opening. The transfer of funds occurs when the banks are ready to send and receive the amount for the transaction. This is has all kinds of security attached because the banks are opening the system to each other for the transfer electronically. Now imagine country to country transactions that is doing this for payments and currency transactions. (this occurs for major banks like Barclays, UBS, Chase but also for Central Banks). Transfers occur in trillions and have to exchange not simply currency, but currency for currency. The complexity to interconnect these transactions and settlements for the number of transactions and size of transactions are numerous. Understanding exactly what the system does is key to understanding why this is so important for commerce.

Arthur
Arthur

This Ukraine conflict looks like the next phase of the “Great Reset.” Traitors in USG and Europe are setting up a conflict they are sure to lose. Taiwan will probably fall if war starts in Ukraine. WEF wants the US to lose its status as principal world power. Russia and China are in on the act.

TN Patriot
TN Patriot

Anyone in Taiwan who cannot leave should be stocking up and resting during the olympics. Once all the cameras & athletes are gone, it will be time for Xi to make his move. Expect a simultaneous move in Eastern Europe by Russia. China and Russia smell weakness in the west and are ready to take advantage of it.

brian
brian

The way I see this is the US is already not the principle power and both Russia and china know this. Its not a secret to anyone.

China and russia HAVE been collaborating to remove the US petrodollar as the trading currency of the world. They know that if the US loses this… they are finished top to bottom and all thats left is to divide the spoils.

IMO, russia isn’t suicidal and its not a high agenda for them to roll into the Ukraine, they don’t need or really want the extra burdens that come with occupying another country. Its like dealing with a petulant two year old,,, oh wait, they are dealing with a two yr old. They thrash, and toss a fit until they tire out or you tire of the drama. Then you swat’m on the arse and make’m sit on the couch until they calm down. IMO, thats the tact Putin will take.

China is going to be tougher to call. There is the big CCP assembly this year and the question is whether Xi has enough consolidated power to hold power should he rush into Taiwan. Will it be more advantageous to continue the grey war and wear down Taiwan or make a costly invasion…

TN Patriot
TN Patriot

When a writer talks about the “nuclear option” in regards to Russia/Ukraine, they should stop and realize the real nuclear option sits atop a rocket.

Trapped in Portlandia
Trapped in Portlandia

Why does this remind me of the sheriff in Blazing Saddles pointing a gun at his own head threatening to pull the trigger.

daddy Joe
daddy Joe

Our hubris (and stupidity) have blinded us to the point that we think we are punishing Russia. Their systems to sidestep the dollar are about in place so they will do fine with our sanctions in place. They don’t need or desire war: their leverage with gas and grain will talk louder than our bluster and sanctions. But TPTB will set up a false flag to provoke Russia just as they always do. Our leaders are stupid and evil enough to fall for it; let’s hope our people don’t. We are the ones being replaced

brian
brian

on the money…

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