The case of Swift is distinctly symbolic. The network was created back in 1973, when 200 (mostly western) banks decided to build a secure, common, multilateral system to exchange standardised messages underpinning interbank payments. Previously, banks relied on telex or bilateral telephonic systems; Swift was a big technological advance. And to signal that the platform was “neutral”, it was based not in Washington or New York, but in Brussels.Until recently, this pro-global stance worked well. While many banks have retained bilateral messaging systems, the network has become the dominant channel for exchanging cross-border payment data. It is used by 10,500 entities in 215 countries. Yet over time its reputation for neutrality has come under attack. A decade ago it emerged that US intelligence had struck a deal with European governments to scrutinise Swift data as part of America’s fight against terrorism. Then in 2012 came the order from the EU – after earlier US pressure – to stop dealing with Iranian banks.The current demands to impose a ban on Russian banks present a potentially more important turn of the screw. To politicians in Washington, cutting Russia out of Swift seems an attractive move. It would arguably be the single most damaging economic sanction the west could use against Moscow. But to Swift managers, the move looks dangerously capricious and partisan. And they fear it would prompt non-western countries to create rival systems, to protect themselves against any future US threats.Russian officials are already warning that they want to build alternatives to Swift. And while it will not be easy for Moscow to do so in the short term – except by dusting off those telex machines – in recent days Russian officials have held talks with their Chinese counterparts about creating a joint platform.
The West in general and the U.S. in particular have been using its ability to impose financial sanctions to great effect. But like all powerful tools, this one has costs and side effects, and we worry that the leadership is not considering them. The biggest danger long term is that if the U.S. uses its control of the system of international finance as a tool too often, other countries will organize alternative clearing systems and the U.S. will end up with less power—and the world financial system will be less transparent, less accountable, easier for terrorists and others to abuse, and harder to reform than it is now.There is a lot of pressure in Washington and elsewhere to overuse the sanctions lever, because the costs of using it are long term and it looks like and easy choice to politicians who are eager to look like they are “doing something” but who are unwilling to risk military confrontations. In a worst case scenario, sanctions substitute for strategy, and the current Western policy toward Russia is almost as poorly thought through as policy can be. Policy makers deal with the bad political vibes caused by foolish policy choices over Ukraine by using sanctions without any serious strategy or plan—undermining the effectiveness of one of our most potent tools without gaining enough in return to offset the cost.A case can be made for tougher financial sanctions against Russia, but it can be made only in the context of a smart, focused and determined strategy for dealing with a determined, clever and unscrupulous opponent. Strategy first, sanctions later, please.