Although Russia’s military invasion of Ukraine continues, the country has got multiple sanctions from different countries under three days. While all these economic sanctions are expected to have significant effects on Russia’s economy, many consider world leader’s resolve to shut Russia out of SWIFT the mother of all sanctions.

On Saturday, Boris Johnson, Prime Minister of the United Kingdom, released an official statement announcing the removal of all Russian banks from the SWIFT system and the enactment of more restrictive sanctions on Russian finances.

SWIFT is an acronym for the Society for Worldwide Interbank Financial Telecommunication. It is the main secure messaging system that banks use to make instant and cross-border payments. It permits intercontinental deals to the tune of trillions of dollars on a daily basis.

This global international payment network was founded in 1970 and is used by thousands of institutions. The SWIFT solution allows international trade to flow smoothly with an average of 38 million transactions daily.

Here are some of the ways SWIFT ban will impact Russia.

LOSS OF ACCESS TO INTERNATIONAL MARKETERS

The immediate impact of SWIFT ban on Russia is expected to be the loss of access to international marketers. SWIFT as a global messaging system connects thousands of financial institutions around the world.

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By cutting Russia from it, the country will be unable to access international financial institutions and marketers. Therefore, it will be harder to make international financial transactions. This means Russian companies and individuals will find it difficult to get payment for export or pay for import.

FALL IN TRANSACTION VOLUME

The ban could also mean a fall in transaction volume in the country. Banks connected to the SWIFT system and have established relationships with other banks can use SWIFT messages to make payments. Payment instructions from SWIFT messages are secure and quickly honored. This ensures speedy processing of transactions. With the ban, Russia will lose access to such speedy processing of transactions.

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While the ban is in effect, Russian banks could use alternative channels, such as phones and messaging apps, for payments. However, such alternatives are less likely to be efficient and dangerous for companies and individuals.

These developments will greatly discourage foreign marketers from selling or buying from Russia. They will be forced to find alternative suppliers, and this will have a lasting impact on the country’s economy.

An analysis by Reuters showed that Russia set up the System for Transfer of Financial Messages (SPFS) as an alternative to SWIFT. However, the system limits the size of messages, operates only on weekdays and finds it hard to add foreign members. This is a major disadvantage for Russia.