The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, made headlines over the weekend when the U.S., Canada and European allies banned the Russian Central Bank and other key banks in Russia from participating in the secure messaging system that facilitates rapid cross-border payments, expediting international trade. Being excluded from the SWIFT network effectively disconnects Russian banks from the international financial system—a major blow to the Russian economy in the millions of both domestic and foreign transactions.
Immediately on Sunday, massive lines of Russians were withdrawing as much foreign currency as they could. By the end of the day, most Russian banks had put a stop to foreign currency withdrawals and only rubles were left. By late Sunday, a number of ATMs had run out of cash.
By Monday, February 28, the SWIFT ban had the intended effect. The ruble fell 40 percent immediately but by the end of the day there had been actions by the Russian Central Bank to prop up the ruble. But even with their actions, at the end of the day the ruble had lost 28 percent of its value. The Russian stock market was closed on Monday and Russian interest rates were increased from 9-5 percent to 20 percent in an effort to stem withdrawals. However, ordinary Russians were already scrambling for access to cash as prices for everyday items soared.
SWIFT is a secondary level (institution rather than individual) cooperative set up in Belgium under Belgium’s cooperative law. Originally formed in 1973 by 239 financial institutions across 15 countries, SWIFT has since grown dramatically. Today, SWIFT links more than 11,000 financial institutions in over 200 countries. SWIFT is not the only global provider of secure financial messaging services, but as it carries 41 percent of all transactions it has major impact. Planning to avoid political sanctions similar to those levied on Russia, the Chinese Government is building its own system. At this time it does not have the reach of SWIFT, but it is where Russian banks may transfer their activity.
In 2021, SWIFT recorded an average of 42 million payment messages per day. Traffic grew by 11.4 percent versus the same period of previous year. SWIFT is governed by a board of no more than 25 elected members, all of whom serve without compensation. Their travel expenses are covered by SWIFT.
According to the bylaws of the cooperative:
- For each of the first six nations ranked by number of shares, the shareholders of each nation may collectively propose two directors for election. The number of directors proposed in this way must not exceed 12.
- For each of the ten following nations ranked by number of shares, the shareholders of each nation may collectively propose one director for election. The number of directors proposed in this way must not exceed 10.
- The shareholders of those nations which do not qualify under #1 or #2 above may join the shareholders of one or more other nations to propose a director for election. The number of directors proposed in this way must not exceed three.
SWIFT is headquartered in La Hulpe, Belgium, just outside of Brussels. Globally, the cooperative has 3,000 employees who manage its extensive and busy worldwide message network.