The White House announced on Saturday that the United States and allies have agreed to block select Russian banks from the global financial messaging system SWIFT.
In a joint statement with the leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada, officials said that Russia's exclusion from SWIFT ensures that "these banks are disconnected from the international financial system and harm their ability to function at the level.
The announcement comes after President Joe Biden told reporters on Thursday that the penalties from the latest round of sanctions against Russia are "probably more of a consequence than Swift".
What does being out of the SWIFT banking system mean for Russia? Here's what you need to know:
What is SWIFT Financial System?
SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. It is a global messaging system that connects thousands of financial institutions around the world.
Swift was founded in 1973 and is headquartered in Belgium. It is overseen by the National Bank of Belgium, in addition to the US Federal Reserve System, the European Central Bank and others. It connects more than 11,000 financial institutions in more than 200 countries and territories around the world to inform banks about transactions.
"It doesn't transfer money, but it does transfer information about money," Alexandra Wacroix, executive director of the Davis Center for Russian and Eurasian Studies at Harvard University, told NPR.
Swift said it recorded an average of 42 million messages a day in 2021 and 82 million messages this month overall. This includes currency exchange, trade and more.
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How will the withdrawal from Swift affect Russia?
SWIFT would immediately damage the economy of the country leaving Russia and, in the long term, cutting off Russia from international financial transactions. This includes international profits from oil and gas production, which account for more than 40% of Russia's revenue.
Iran lost access to SWIFT in 2012 as part of sanctions on its nuclear program, although many of the country's banks were reconnected to the system in 2016. Vacroux told NPR that when Iran was delisted, "they lost half of their oil export revenue and 30% of their foreign trade."
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What did other leaders say about Russia's removal from SWIFT?
Ukrainian President Volodymyr Zelensky urged the US and other countries to cut Russia out of the system. Some countries resisted the exit out of concerns for the broader economy, but as more EU countries invaded, they came on board.
On Saturday morning, Italian Prime Minister Mario Draghi told Zelensky that Italy supported "Russia's disconnection from Swift, the provision of defense assistance".
Several hours later, Germany, which was the last EU nation to impose sanctions, offered measured support for Russia's disconnection from SWIFT, according to a joint statement by German Foreign Minister Annalena Berbock and German Economics Minister Robert Hebeck.
"We are clearly working on how to limit the collateral damage of a disconnection from #SWIFT so that it reaches the right people," officials wrote in a statement. "We need a targeted and functional restriction of Swift."
