AILSA CHANG, HOST:
The U.S. and its European allies are trying to avoid a military conflict with Russia, which means there's been a lot of focus on non-military options - diplomacy, of course, and economic sanctions. But one of the biggest sanctions that could be imposed - a total ban from the global messaging network for banks.
Darian Woods and Stacey Vanek Smith from our daily economics podcast The Indicator from Planet Money break down the system at the heart of how money moves around the world.
STACEY VANEK SMITH, BYLINE: Russia has about a hundred thousand 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.
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.
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 an 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.
DARIAN WOODS, BYLINE: 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 WhatsApp for money.
VACROUX: Exactly. Right. It doesn't move the money, but it moves the information about the money.
WOODS: Has any country being 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: 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. The problems with sanctions is that they're very rarely lifted. So, OK, you 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.
VACROUX: Yeah, exactly. I think that, you know, this - the 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: Darian Woods.
VANEK SMITH: Stacey Vanek Smith, NPR News.
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