What is SWIFT? How Russian banks got cut out of the financial system

Several Russian banks were banned from the SWIFT financial-messaging system following Russia's full-scale invasion of Ukraine. So, what does it mean to lose access to this important part of the international economy, and are there any viable alternatives?
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Effective communication systems are the backbone of how the world stays connected, from mobile phones, email networks, to banks.  

What do banks use to communicate?

SWIFT – or the Society for Worldwide International Financial Telecommunications – is a system that banks use to securely send messages to each other. It is one of the key pillars of the financial world, connecting more than 11,000 member banks in some 200 countries and territories globally. Trillions of dollars'-worth of currency are sent across borders every single day – and it's largely thanks to the messages sent by SWIFT.

How does SWIFT work?

If you wish to transfer $1,000 from your bank in Singapore to your friend in the UK, you'll need a few key details; namely your friend's account number and his bank's SWIFT code. If the two banks have an account with each other, they authenticate the payment request, apply an exchange rate and the equivalent amount is deducted from your bank account for your friend to receive.

If the banks don't have a relationship, the message will be sent through intermediary banks, until the payment request is verified for your friend to receive his money. 

"It's really about secure, automated payments," Alistair Milne, an economist at Loughborough University told CNBC. "This is so that everything integrates with the bank systems."

What happens if you're banned from SWIFT?

SWIFT has been thrown into the spotlight with the Russian invasion of Ukraine, when numerous Russian and Belarusian banks were removed from the SWIFT network as part of economic sanctions. This essentially means these banks' ability to conduct financial transactions on an international scale has been disrupted.

However, SWIFT is not the only system for international transactions. Russia has its System for Transfer of Financial Messages or SPFS, serving 400 users as of February 2021. Twenty-three of the users were foreign banks.

The People's Bank of China also has the Cross-Border Interbank Payment System, or CIPS. By 2019, it reached more than 3,000 banks directly and indirectly, across 167 countries and regions.

Furthermore, alternative networks like cryptocurrencies and blockchain technologies are advancing.

Caroline Malcolm, who heads international policy at blockchain data company Chainanalysis acknowledges that a legacy system like SWIFT is hard to detach from. "But there are certain capabilities and features in blockchain based systems that can't be matched by traditional systems," she said in an interview with CNBC. "Blockchain allows people to hold their own funds and control that in a very direct way."

Watch the video to find out more about the future of payments.

#CNBC #SWIFT #Blockchain #Crypto
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[garlicbreathandfarts]

Everything can and usually does get replaced with time.

[tyoong]

There is clearly a business need for alternative to Swift.

[kalomboC]

The trouble with the weaponization of the Western Financial System is alternative systems become increasingly attractive as countries (even neutral ones) realize their vulnerability.

A similar thing has happened at a smaller scale with dollar denominated payment gateways like VISA etc have found themselves replaced by national switches at a local level.

The wise countries and regional blocs will start to prepare and implement parallel financial eco-systems and mandate their use by entities wishing to do business in their countries.

[kelvinking]

It will be replaced. It's just a matter of time

[nickashton]

Chinese interbank transfer system CITT already exists

[vladimirfasyura]

Swift доказало свою ненадёжность и политическую ангажированность

[Sams_Uncle]

Weaponisation of anything is dangerous.

[dungkicau]

If the barrage of sanctions is aimed at punishing Russia for the conflict that caused a humanitarian crisis, then where did the sanctions go when the conflict occurred in the Middle East???? Human reasons often become fairy tales during the day😅

[BU_]

USA and EU - 5500 sanctions
Russia - 1 sanction (Rouble)
USA and EU- Not fair

[jamesdickerson]

It's not hard to attract banks when the current system completely crashes.

[greendenny]

So this is west weapon to sanction and robbery other country, dollar and swift is dangerous thing.

[repure]

When 1 country controls all the money... It won't last too long.

[albertongoogle]

Intermediary bank process should be investigated. Send first time fee is x, send second time (same details) fee is y. Ask receiving bank about it, they don't know. Ask sending bank about it, they also don't know.

[max_galingumas]

they did not disconnect Gazprom and other banks responsible for trading gas and oil

[supercadet]

This article glosses over the geopolitical and national security reasons for alternative systems to gain prominence. Nobody ever said SWIFT had to disappear for parallel networks to grow. The Chinese govt also aren't simply going to passively hope that other countries join their system. There are other reasons that countries would like to join the Chinese system as well. Eg. Developing economies lacking large US currency reserves, would be interested in dealing directly in Yuan where possible, and if not threatened by the US Empire 🙄

[mollyb]

"Detached from swift overnight"
As Ripple just lays down their terms for settlement. I ❤ it!
Simply Beautiful.

[pralinkp]

UPI system is all over in india even street vendors can use it . Hope it will replace swift payment so that monopoly can be broken and give way for new beginning

[awesomebrotherhood]

In the end there are two things,

If there is a will, there is a way

If you give anyone time; they can find something around it

[cheryleewilcox]

I'm in Venezuela. We are now using the Russian Mir payment system.

[jacobbhattacharjee]

Nothing is permanent in this world 😈 your time has come and now Swift will fall