The ruble plunged nearly 26% against the US dollar early Monday after Western powers imposed sanctions and agreed to cut off Russian banks from the SWIFT global payment system over the country’s invasion of Ukraine.

The ruble, which is the currency of Russia, was trading at a record low of 105.27 per dollar, down from about 84 per dollar late Friday, according to a report by Associated Press.

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SWIFT is the abbreviation for Society for Worldwide Interbank Financial Telecommunication. It is considered a secure international banking system to send and receive payments from another country, making international trade swift and easy. The system has been developed to improve transactions cutting across the border to make the process of trade seamless. In 2020, about 38m million transactions were recorded in a day on the SWIFT platform, facilitating trillions of dollars worth of deals.  

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Russia relies on this system for both gas and oil exports, which forms the cornerstone of the country’s economy. 

Over the weekend, Japan joined the moves by the US and other western nations to impose more sanctions against Russia. Restrictions on the Russian central bank target its access to more than $600 billion in reserves the Kremlin has at its disposal. They hinder Russia’s ability to support the ruble as it plunges in value, reported Associated Press.

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Blocking Russian banks from SWIFT was also considered in 2014, when Russia invaded Ukraine’s Crimea and backed separatist forces in eastern Ukraine. However, Moscow had warned that exclusion from the system would be seen as a declaration of war –leading to the western countries dropping the idea. Russia since then has tried to develop its own financial transfer system, with limited success.

The disconnection from SWIFT announced Saturday was partial, leaving Europe and the United States room to escalate penalties later. Officials said they had not fully settled on which banks would be cut off and that the aim was for targeted, functional restrictions, reported AP.

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Russia launched a massive invasion of Ukraine by land, air and sea on Thursday, after months of military build-up at the border and heightening suspicion of war by the West. Moscow’s aggression is considerably the biggest attack by one state against another in Europe since World War II.

The move invited boycotts and sanctions from world powers including the United States, the United Kingdom, the European Union, Germany, Canada, Australia, New Zealand, and other countries.

Sanctions announced earlier had taken the Russian currency to its lowest level against the dollar in history.

(Written with AP inputs)