SWIFT: what is it and what SWIFT ban means 🏦; Surge in crypto donations to Ukraine🇺🇦; Bittersweet results from Coinbase 🤷♂️
Good Morning FinTech, February 28
Good day Everyone,
And happy Monday! I hope you managed to have a calm and relaxing weekend, as much as it’s reasonably possible among all this madness… To make the most of your Monday, here’s a mix of 3 great FinTech stories for you today:
SWIFT: what is it and what SWIFT ban means 🏦
The news 🗞 Talks around SWIFT and cutting Russia out of it have been at the epicenter among the world leaders for the last couple of days. It appears that the decision has been made and hence a select group of Russian banks are to be excluded from the Swift financial messaging system as part of a package of new financial sanctions agreed by Western allies.
Pressure had been building on EU leaders to cut Russia off from SWIFT in response to the escalating military crisis in Ukraine.
The cut-off ✂️ Announcing the measures on Sunday, EU president Ursula von der Leyen, said:
Important Russian banks will be excluded from the Swift system. We will also ban the transactions of Russia's central bank and freeze all its assets, to prevent it from financing Putin's war.
A step back ⏮ In order to comprehend what this means, let us take a step back and refresh ourselves on what SWIFT is all about.
Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a Belgium cooperative that runs a messaging service that facilitates transactions across 11,000+ financial institutions globally. Think of it as Facebook Messenger but for banking.
Entities in every country except North Korea hence use SWIFT to send trillions of dollars worth of funds across borders.
It’s important to note that Russia is a strong SWIFT user because it’s a major supplier of energy and other goods, and it hence ranks 6th globally for payment messages sent on SWIFT.
The SWIFT ban 🛑 So what does it mean for a country to be banned from SWIFT? To put it simply, if Russia were cut off from SWIFT, the country would essentially be severed from much of the global financial system.
Of course, there’s a downside to it. Many European nations (i.e. Germany) rely on Russia for their energy and have already faced an energy price crisis. Hence, banning Russia from SWIFT would have damaging effects on European economies short-term, and this was the ultimate blocker for this decisive decision to be made.
On the other hand, it’s potentially an economic nuclear weapon of the West. As billionaire investor Bill Ackman has put it, you wouldn’t want to keep your money in a bank that can’t access the SWIFT system. Once a bank can’t transfer or receive funds from other banks, its solvency can effectively be at risk. If I were Russian, I would take my money out now. Bank runs could begin in Russia on Monday.
✈️ THE TAKEAWAY
Double-edged sword 🗡 To sum it all up very simply, we must note that the SWIFT ban should work and it will probably have severe consequences for the Russian economy. We are already starting to see that as Russians line up at ATMs to withdraw their funds while the Russian Ruble is crashing. In the short-term, Europe will suffer too because of heavy reliance on Russian energy, but that’s the price the Western leaders probably already agreed to pay. Zooming out, we must note that China is quietly yet surely building an alternative to SWIFT called CIPS (Cross-border Interbank Payment System). Although today CIPS is small, China & Russia could provide a regional alternative to SWIFT soon, and recent events could be a huge catalyst for that. Finally, there’s also crypto that could be used to circumvent all of it and hence make Russian positions much stronger. So the next couple of days will be pivotal. For all of us.