Trade economist Dr Rebecca Harding says: “It facilitates trillions of dollars worth of financial transactions so it’s important as this enabling mechanism for world trade, but it’s effectively a postbox.”
Forecasters believe Swift makes a big difference to the economic pain of sanctions for Russia, at least in the short-term.
Capital Economics estimates that sanctions announced will cut Russian GDP by at least 1pc but predicts that measures targeting its energy sector or banning Russia from Swift would be far more damaging.
It estimates that these more aggressive sanctions could send Russia into a “deep recession” with the rouble crashing to new record lows and GDP sliding 5pc – a hit also predicted by former Russian finance minister Alexei Kudrin back in 2014.
Swift has been used as a weapon before as Iranian banks were ejected in 2012, with sanctions against Tehran triggering a deep downturn.
Europe’s decision to make
However, the UK would need to get the backing of Europe to push through this “nuclear option”.
The Belgium-headquartered Swift system is a cooperative owned by its members, the banks, and is governed by EU law.
That means the decision to eject Russia needs broad agreement and cannot be done unilaterally by the UK or US without the backing of Europe.
Scholz appears to have been persuaded to hold fire by fears that ejecting Russia from Swift comes at a cost for Europe too.
The Dutch prime minister, Mark Rutte, admitted that Swift is “sensitive” for many European countries “because it would also have an enormous impact on ourselves”.
German gas supplies could be the collateral damage of hitting Moscow through Swift.
“The German economy is heavily exposed to Russia,”
Harding on the possible impact. Germany is Russia’s second-largest trading partner to the tune of $45bn. “It would make it more difficult for the payments for oil and gas to be made.”
Cutting it out of Swift also threatens to disrupt German payments for oil and gas to Russian energy firms, such as Gazprom, threatening supply at a delicate time as inflation soars.
With Russian gas accounting for around half of German supply, Scholz will fear a huge impact on its industry-heavy economy from energy disruption.
Italy and Hungary were also opposed to using Swift to hit Putin with the latter signing a long-term deal for Russian gas only last year.
Tom Keatinge, a finance and security expert at the Royal United Services Institute, says: “Swift probably needs to stay open for two reasons. One is so that the Germans and others can make payments for their energy.
“But secondly, there’s an awful lot of credit with Russian banks and Russian companies that needs to be repaid… it would potentially be an unnecessary own goal.”