Share This Commentary
Knowledge Center Archive
Is Iran About to Receive a SWIFT Kick?
Numerous financial sanctions and trade restrictions have been imposed on Iran in recent years by governments and non-governmental organizations in Europe and the U.S. To this point, however, they have not had the desired effect of forcing Iran to the negotiating table to address its continued pursuit of nuclear technology. As a result, many Western countries have continued to look for ways to ratchet up the diplomatic and economic pressure. One of the most recent measures, proposed by both the European Union (EU) and the U.S., would force the Society for Worldwide Interbank Financial Telecommunication (SWIFT, a financial co-operative that owns a private communication network that most banks use to execute cross-border transactions) to stop serving Iranian banks.
SWIFT, a financial co-operative based in Europe, was formed almost 40 years ago to provide a secure and efficient communications network through which member banks efficiently and securely exchange information regarding cross-border financial transactions. Despite being subject to competition, it is still the dominant player in its space. Although it does not custody funds or clear transactions, its system functions as a gateway to many important national and regional payments clearing systems, such as the European Central Bank’s TARGET 2 and the U.S. Federal Reserve’s FedWire. The pressure on SWIFT to exclude Iranian banks seems intended to make it all the more difficult for Iran to sell its oil, obtain hard currency and import goods from abroad, should Western powers decide such actions are needed.