[Song Seungseop's Financial Light] Why Russia Sanctions Swift Are a 'Financial Nuclear Weapon'

SWIFT Ensuring Safe Global Financial Transactions
Exclusion from SWIFT Means De Facto International Financial Isolation
Cannot Receive Payment or Send Overseas Remittances Even If Selling Goods
US, European Union, etc. "Exclude Russia from SWIFT"

Finance is difficult. It is tangled with confusing terms and complex backstories. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Accordingly, Asia Economy selects one financial issue each week and explains it in very simple terms. Even if you know nothing about finance, you can immediately understand these ‘light’ stories that will ignite a bright ‘light’ on finance for you.

Ukrainians residing in Korea are marching near the Russian Embassy in Jung-gu, Seoul on the 27th, condemning Russia's invasion of Ukraine. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporter Song Seung-seop] As the war between Russia and Ukraine intensifies, the international community is moving busily. The United States and Western European countries plan to impose strong international sanctions on Russia, which invaded Ukraine. One of these is excluding Russia from SWIFT. But what exactly is SWIFT?

SWIFT stands for ‘Society for Worldwide Interbank Financial Telecommunication.’ Translated into Korean, it is ‘Gukje Eunhaenggan Tongsin Hyuphoe’ (International Bank Communication Association). It is a kind of organization. It was established in 1977 by banks in Europe and the United States for cross-border fund transactions. Currently, it is headquartered in Belgium and operated by member institutions that have joined the association.

The role of SWIFT is simple: secure global financial transactions. SWIFT provides a connected network that allows banks in various countries to remit funds to other financial institutions. Transactions require codes set directly by SWIFT and use encrypted special financial messages, ensuring security. Data centers are distributed in the United States, the Netherlands, Switzerland, and other countries, so there is no risk of network connection problems.

Therefore, many countries and banks use the SWIFT network. They pay fees to the association and safely use international remittances. It started with 239 banks at its launch, but now over 200 countries and about 11,000 financial institutions use it. More than 15 million financial messages exchanged between banks are sent daily. Except for countries like Iran and North Korea, virtually the entire world uses SWIFT.

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What does it mean to be excluded from SWIFT? It means you cannot send or receive money internationally. Even if a company manufactures products and exports goods, if it is not a SWIFT member, it cannot receive payments. Citizens will find it difficult to send money abroad. Normal overseas loans and investments will also become impossible. Foreign investors will likely hesitate to invest. Of course, there are various workarounds, but they are inefficient, costly, and involve risky transactions with lower security.

Financial experts call exclusion from SWIFT the ‘nuclear weapon of the financial sector’ because the impact is so severe. There have been cases where sanctions were actually imposed using SWIFT. In 2012, when Iran attempted nuclear development, the United States and the European Union (EU) excluded Iran’s central bank, 30 financial institutions, and companies from SWIFT. Iran had earned income by selling oil and gas, but being excluded from SWIFT made it difficult to receive money, severely damaging the national economy.

Russia is also expected to face SWIFT sanctions. On the 26th local time, the United States announced that it had agreed with allies such as the EU to exclude Russia from the SWIFT payment network. This is considered the strongest sanction against Russia for its invasion of Ukraine. Italy and Germany, previously known to be somewhat reluctant about sanctions, have changed their stance and joined the sanctions. Russia’s central bank holds $643 billion (774.5 trillion KRW) in international reserves, which will become inaccessible, causing significant damage.

Some are concerned about backlash. The relationship between China and Russia may strengthen, and cracks could appear in the dollar-centered international financial order. China has its own payment system, not SWIFT. This means China can conduct financial transactions with Russia without using SWIFT. If isolated Russia uses China as a bypass for financial transactions, the relationship between the two countries will become closer. It is also problematic for the international community that lent money to Russian companies and banks. Since Russia is excluded from SWIFT, it will be difficult to recover the money. According to the Bank for International Settlements (BIS), foreign banks have lent $121 billion (145 trillion KRW) to Russian companies.

This content was produced with the assistance of AI translation services.