What is Swift and why does it matter?

The UK has agreed with the EU and US to cut some Russian banks out of the Swift banking system.

Boris Johnson has said the Swift banking system is “incredibly important” for putting economic pressure on Russia.

What is Swift?

Swift stands for the Society for Worldwide Interbank Financial Telecommunication. Set up in 1973, it is a crucial part of the plumbing that facilitates flows of money around the world.

It is a secure messaging system that allows around 11,000 financial institutions to talk to each other and authorise payments. When a payment is sent from one bank to another, they receive a message via Swift before going ahead with the transaction. Around 40 million transactions are carried out using Swift each day.

It is operated as a co-operative by 2,000 member banks and is based in Belgium. Central banks including the Bank of England oversee the running of the co-operative.

Swift is a neutral organisation that cannot issue its own sanctions. A decision to block Russian banks from using the system would need to be agreed upon by governments.

Will a ban from Swift hurt Russia?

Boris Johnson put forward the case that excluding Russia from Swift would make life difficult for Mr Putin by preventing Russia from sending and receiving payments.

Speaking on BBC Radio 4's Today programme, Defence Secretary Ben Wallace Wallace explained: "When you pay Russia for its gas, it probably goes through the Swift system, for example.”

He added: "We want it switched off. Other countries do not. We only have so many options. We are going to work all day to try and get it (switched off for Russia)."

Are there ways round a Swift ban?

The boss of VTB, a large Russian bank, VTB, said recently he could use other channels for payments, such as phones, messaging apps or email.

China has its own system known as Cips which it hopes will become a widely used alternative to Swift.

There are also alternatives such as cryptocurrencies, and Russian banks will still be able to route payments via countries that have not imposed sanctions.

Why hasn't a ban already been implemented?

Exclusion of Russian banks from Swift required international agreement and there were differing views on whether to go ahead with it.

Germany resisted a ban and Bruno Le Maire, France's finance minister, said that the measure would only be used as a last resort.

US President Joe Biden was also understood to be hesitant. Washington believed that European nations that do business with Russia could also be damaged if Russian banks were barred from using Swift.

Russia is a big supplier of oil, gas and a number of other important commodities to Europe. Blocking payments could disrupt those supplies and push prices up further.

Agreement on such a measure has happened before. In 2012, the EU barred Swift from serving Iranian firms and individuals sanctioned in relation to Tehran’s nuclear programme.

UK Defence Secretary Ben Wallace said: "Like so many things, these are international organisations, and if not every country wants them to be thrown out of the Swift system, it becomes difficult."