What is SWIFT and why is Russia being threatened with out of service?Author: Yuvi February 27, 2022
SWIFT is a messaging network used by banks and financial institutions globally for quick and flawless exchange of information related to financial transactions.
The US, Europe and many other Western countries are moving Russia out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), an international network for banks around the world to facilitate smooth money transactions on a global scale. does. This could be the strongest economic sanctions against Russia over its military moves into Ukraine, as it would potentially cut the country from receiving international payments.
What is Swift?
SWIFT is a messaging network used by banks and financial institutions globally for quick and flawless exchange of information related to financial transactions. Belgium-headquartered SWIFT connects more than 11,000 banking and securities organizations in more than 200 countries and territories.
Each participant on the platform is assigned a unique eight-digit SWIFT code or a Bank Identification Code (BIC). If a person, say, with a Citibank account in New York, wishes to send money to someone with an HSBC account in London, the recipient has to submit the beneficiary’s account number in London based in New York with the eight-digit SWIFT. The code of the latter bank. Citi will then send a swift message to HSBC. Once it is received and approved, the money will be credited to the required account.
SWIFT is just a platform that sends messages and does not hold any securities or money. It facilitates standardized and reliable communication to facilitate transactions.
What if someone is kicked out of Swift?
If a country is excluded from most participating financial facilitation platforms, its foreign funding will be affected, making it completely dependent on domestic investors. This is especially troublesome when institutional investors are constantly looking for new markets in new areas.
Building an alternative system would be cumbersome and even more difficult to integrate with an already elaborate system. Swift, first used in 1973, went live in 1977 with 518 institutions in 22 countries, its website states. The Swift itself replaced the much slower and less maneuverable Telex.
Are any countries excluded from SWIFT?
Iranian banks were pulled out of the system in 2018 despite resistance from several countries in Europe. “This step, although regrettable, was taken in the interest of the stability and integrity of the wider global financial system and based on an assessment of the economic situation,” Swift said on its website.
How does the organization operate?
Swift claims to be neutral. Its shareholders, consisting of 3,500 firms worldwide, elect a 25-member board, which is responsible for overseeing and managing the company. It is regulated by the G-10 central banks of Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, the United States, Switzerland and Sweden, along with the European Central Bank. Its chief overseer is the National Bank of Belgium.
The SWIFT Oversight Forum was established in 2012. G-10 participants included the central banks of India, Australia, Russia, South Korea, Saudi Arabia, Singapore, South Africa, the Republic of Turkey and the People’s Republic of China.
Europe, the Middle East and Africa are the largest contributors to SWIFT
In 2021, the SWIFT financial messaging platform recorded an average of 42 million FIN messages per day, according to data from its website. The full-year figure was an increase of 11.4% on a year-on-year basis.
Europe, the Middle East and Africa combined sent about 4.66 billion messages. The US and the United Kingdom ranked second with 4.42 billion interactions, while Asia Pacific ranked third with nearly 1.50 billion messages.