How NATO could block Russia from the global financial system using SWIFT : The Indicator from Planet Money Russia has the United States and its allies worried about a potential invasion of Ukraine. One of the most painful sanctions NATO could impose would cut Russia's economy from the world.

How a bank messaging system could decimate Russia

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript




This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.


I'm Darian Woods.

VANEK SMITH: And, Darian, we are right now looking at roughly 100,000 Russian troops stationed along Ukraine's border. And this is - like, it's a little nerve-wracking, honestly, to see this.

WOODS: There's been all kinds of meetings and negotiations all over Europe in the last couple of weeks. And basically, the U.S. and its allies are trying to convince Russia that there isn't any need to invade Ukraine.

VANEK SMITH: And it is a little hard to pin down the exact reasons for Russia bringing its military to the border right now. There's Russia's shared history with Ukraine - also, Russia's sometimes acrimonious relationship with some of its European neighbors and the U.S. and, of course, their military presence in the region.

WOODS: Antony Blinken - he's the secretary of state for the U.S. And on Friday, he'll meet with the Russian minister of foreign affairs. And what they're trying to do is really to see if this standoff can be resolved without weapons.

VANEK SMITH: And one of the main ways to negotiate a conflict like this without weapons is economic sanctions.


WOODS: Sanctions - so stopping trade and finance with a country as a tool for getting them to do what you want. And the U.S. and its allies have almost the equivalent of, like, a nuclear option when it comes to sanctions - complete exclusion from the global financial system.

VANEK SMITH: So today on the show, the system at the heart of how money moves around the world and whether this could be used to deter Russia from conflict.


VANEK SMITH: Russia has about 100,000 troops stationed around Ukraine's border, and the U.S. and its allies are furiously negotiating with Russia to stop any invasion.

ALEXANDRA VACROUX: Emphasis on furious - the Russians are furious (laughter).

VANEK SMITH: This is Alexandra Vacroux. She runs the Davis Center for Russian and Eurasian Studies at Harvard. Alexandra first went to Russia in the 1990s. She was doing her dissertation on privatization as the country's economy was starting to open up after the collapse of the Soviet Union. Alexandra then worked for an investment bank in Russia for a charity fund. She stayed there for 12 years.

VACROUX: It was a whole lifetime of experiences in 12 years.

WOODS: And now Russia is in the headlines again.

VACROUX: Well, they say that, as far as academics are concerned, bad news is good for business. But this is not really the kind of news we want to be following. I'd much rather hear about Russia and opportunities for cooperation and collaboration and business, and this is the opposite of that.

WOODS: Alexandra says that one big reason for Russia placing those troops beside Ukraine relates to NATO. That's the North Atlantic Treaty Organization, which is a military alliance of the U.S. and 29 other countries outside of Russia.

VACROUX: The Russians believe that the U.S. and NATO promised not to expand eastward past East Germany. And in fact, they expanded. They took in Poland. They took in Hungary. The Baltics joined NATO - all of these countries that are quite close to Russia and then even part of the former Soviet Union. And Russia has been saying, increasingly stridently, that that is a red line for them. They do not want countries that used to be in their orbit to be joining NATO.

VANEK SMITH: And in December, Russia gave a set of demands to NATO. And NATO replied, yes, there are some things we can agree on, like not having military exercises right up close to the Russian border. But some of the other demands, we can't do those.

VACROUX: The Russians have said, like, this is not a menu. This is a package. It's take it or leave it. And then the Americans and NATO are like, well, that's a non-starter. Like, forget it. We're not buying that package. And the Russians storm out. And that's kind of where things were left at the end of last week.

WOODS: So the U.S. side - you know, the side that NATO's on - they've put forward a whole set of counteroffers. It includes some carrots, some concessions to Russia, but also some sticks. And other than military force, the main stick that you can threaten is sanctions.

VANEK SMITH: There is a long history of the U.S. and its allies putting sanctions on Russia. And in the last decade, the U.S. has focused sanctions on very narrow areas, like in oil and gas drilling. American companies are banned from lending to Russian companies on a blacklist, and the sanctions have also focused on specific elites in Russia - high-level businesspeople and government officials.

VACROUX: The idea originally was that if you sanctioned those people and made it difficult for them to travel or buy real estate in Miami or send their kids to school, that they would realize that Putin is not such a great thing, and they won't support him anymore. But that turned out not to be true.

WOODS: Right. We haven't seen the response that the West wanted.

VACROUX: Exactly. What's in play right now is more extreme sanctions and the use of the so-called nuclear option, which would be cutting Russia off of the SWIFT messaging system.

VANEK SMITH: The SWIFT messaging system - this is the very fabric of the global financial system. It's the way that most banks talk to each other for money transfers.

WOODS: SWIFT was set up in Belgium in the 1970s, and it carries messages that are run from three data centers in the U.S., the Netherlands and Switzerland.

VACROUX: SWIFT is like a special social media platform for banks to talk to each other.

WOODS: Like a WhatsApp for money.

VACROUX: Exactly. Right. It doesn't move the money, but it moves the information about the money.

WOODS: And is this just the way that international finance is done? I mean, are there alternatives to SWIFT?

VACROUX: So there are a couple alternatives. The Chinese have come up with a system. It's much smaller. It's used for some regional transactions. It's denominated in renminbi.

VANEK SMITH: Renminbi - the Chinese currency. The new Chinese messaging system is mainly just used by banks inside China - so not particularly useful for international transactions.

WOODS: Russia has also tried to set up its own version of SWIFT.

VACROUX: After 2014, when Russia annexed Crimea, at the time, Russia immediately started working on putting together an alternative, just in case it was going to be cut off. So it's like you were told that you can't use Twitter anymore, right? And you could come up with an alternative. But unless you've got a lot of other banks or a lot of other people on that alternative platform, you're not going to be able to do what you were doing before.

WOODS: You'd just be talking to yourself into the void.

VACROUX: Yourself or, you know, the 200 other banks that you forced to join...

WOODS: Yeah.

VACROUX: ...Because the Russian Central Bank was trying to force its banks to join this new platform. So that's OK. But compared to SWIFT's 11,000 members now - that's not SWIFT.

WOODS: Has any country been cut off from SWIFT?

VACROUX: Well, Iran.

WOODS: Iran - and what happened to their economy?

VACROUX: It was not great. They lost half of their oil export revenues and 30% of their foreign trade.

WOODS: Wow. So it decimated the economy.

VACROUX: Yeah. That's why it's the nuclear option.

WOODS: And I imagine it's also - it's not just bad for the subject country, whether it's Iran or potentially Russia. It's also bad for the people that are trading. So it would be quite a big call, to say the least.

VACROUX: So - yeah, and Germany is particularly concerned about it.

VANEK SMITH: Germany is dependent on Russia for natural gas, for electricity and heating in the winter. Disrupting that flow of natural gas would be extremely difficult for European countries like Germany.

WOODS: Alexandra says excluding Russia from SWIFT is unlikely. But there are other smaller strategic sanctions that could be done, like banning the export of American-designed smartphones. But something like forever locking Russia out of SWIFT...

VACROUX: Once you impose this - right? - there's nowhere else left to go in terms of sanctions.

WOODS: Right. Like, you have to keep having marginal incentives. Like, we can't just block you out of international life forever. There needs to be another disincentive after that.

VACROUX: The problems with sanctions is that they're very rarely lifted. So OK, we know - we don't think we have that much leverage on Putin now. Like, once you do this, basically, you have no leverage.

WOODS: It reminds me of the phrase beatings will continue until morale improves (laughter).

VACROUX: Yeah, exactly.

WOODS: So you're saying the track record of the United States is it's more on the sticks approach than the carrots.

VACROUX: It's just - it's impossible to get rid of the sticks. Like, once you throw them down, nobody wants to pick them up. I think that, you know, this situation in Ukraine is - it's an extreme gamble on Russia's part to try and force a return to a world order that they felt more comfortable with. And they don't know if it's going to work or not. But I think they still think it's worth the gamble.


WOODS: Today's show was produced by Nicky Ouellet with help from Isaac Rodrigues. It was fact-checked by Corey Bridges. Viet Le is our senior producer, and Kate Concannon edits the show. THE INDICATOR is a production of NPR.


Copyright © 2022 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.