Put simply, the SWIFT system allows money to be sent around the world very quickly.
While the sanctions imposed on Russia are targeting the wealthy and political classes, it is also having a significant effect on everyday Russians.
Russian YouTuber Roman Albertovich Abalin (known as NFKRZ) explained that being removed from SWIFT would have a devastating impact.
“I think the scariest thing for me personally, with these sanctions, is that they obviously will cripple the Russian economy and the ruble has already dropped.”
Removing a number of Russian banks and financial institutions from the system means Russian businesses and people will have a very difficult time getting money sent to them.
Here are the main points you need to know:
SWIFT stands for Society for Worldwide Interbank Financial Telecommunications
It is a messaging system to quickly, accurately, and securely send and receive information
It does not hold any funds itself - it just quickly alerts other financial institutions that money has been sent from one to another
SWIFT includes around 11,000 financial institutions
In 2021, SWIFT was used to send around 42 million messages a day
The way it works is that each member organisation is given a unique identifying code, which can be used to alert another institution money is being sent.
For example, if a Commonwealth Bank (CBA) customer wanted to send money to someone in the US who banks with Bank of America (BoA), they would just need their friend's account number and the unique SWIFT code for the BoA.
A message would be sent from CBA to BoA through SWIFT alerting them that the money was being sent.
As soon as BoA receives the message, the money is cleared into the friend's BoA account.
Effect of removing Russian institutions from SWIFT
First and foremost, the Russian ruble (Russia’s official currency) has taken a massive hit.
Over the weekend, the ruble dropped to as low as 0.011 USD - meaning you would need 89.9 rubles to be the equivalent of US$1.
This means the cost of goods is now significantly higher for the people of Russia.
Another effect of being removed from the SWIFT network means those who make a living from organisations outside of Russia may now not be paid.
Abalin said that while he understood what the Ukrainians were going through was much worse, he felt it was important to explain the effects of sanctions on the Russian people, who did not support the war.
“I understand this is nothing compared to what the Ukrainian people have to go through right now. But if you were in my position, you would be concerned,” he said.
“If Russia gets disconnected from SWIFT, I am essentially not going to be able to be paid anymore.
“I do not want a war and I do not have anything against the people of Ukraine. I just hope for the best, even though there's very little hope left I guess.”