THIS week, a tiny new milestone was passed on the road of globalisation. The Society for Worldwide Interbank Financial Telecommunication — the banking utility better known as Swift — said it had processed a record number (some 26m) of daily transactions.

That is encouraging. Rising bank transactions tend to mean growing levels of global trade — just what world leaders and officials would like to applaud when they assemble at next week’s autumn meetings of the World Bank and IMF.

Sadly, there is a catch. A few days before notching up that record, Swift noted that the European Parliament had passed a resolution demanding that Russian banks be expelled from the system in protest at Russia’s incursions into Ukraine. Behind the scenes, US politicians have been also putting pressure on Belgium-based Swift.

Thus far Swift has refused to comply. Two years ago in a groundbreaking move a group of Iranian banks were excluded from the network as part of western sanctions against Tehran. But this time, Swift officials vehemently oppose a Russian ban. Next week Swift will issue a rare statement declaring that it ‘regrets the pressure’ and noting that ‘as a utility with a global systemic character, [we] have no authority to make sanctions decisions’ — unless ordered to do so by parliament.

Investors need to take note. If Swift acquiesces, Russia could be badly hit. The country’s banks rely heavily on the network to make domestic and international payments. Alexei Kudrin, Russia’s former finance minister, has warned that the move could cause gross domestic product to contract by ‘up to 5pc’. A Russian ban could also have bigger implications for global finance. It would reignite a key question hanging over next week’s IMF and World Bank meetings: will the global institutions that helped to stitch the world together in the late 20th century continue to be a unifying force in this one? Or will political fracture unpick economic ties?

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 more or less every country. 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.

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. Russian officials have held talks with their Chinese counterparts about creating a joint platform. If Beijing comes on board, and others were also to join, the consequences would be significant, say banking experts.

Instead of having one major cross-border payments system, the world could eventually split into two (or more) networks — making global payments less efficient.

That might not worry Washington now, given the prospect of deploying such an effective weapon against President Vladimir Putin. But it should, as it would come at a real cost to all actors in the global financial system. If nothing else, the tussle about Swift is a potent reminder that the path of globalisation does not always go in one direction. That 26m daily transaction record may yet turn out to be not a milestone but a watershed.

Published in Dawn, Economic & Business, October 6th, 2014