The SWIFT system stands for the Society for Worldwide Interbank Financial Telecommunication and is a secure platform for financial institutions to exchange information about global monetary transactions such as money transfers. Set up in 1973, it is a crucial part of the plumbing that facilitates flows of money around the world.
It is operated as a co-operative by 2,000 member banks and is based in Belgium. Central banks including the Bank of England oversee the running of the co-operative.
SWIFT is a messaging system; it is not a payment platform. When a payment is sent from one bank to another, they receive a message via Swift before going ahead with the transaction. Around 40 million transactions are carried out using Swift each day. Swift sends a payment message, which must be settled by correspondent accounts that the institutions have with each other. Each financial institution, to exchange banking transactions, must have a banking relationship by either being a bank or affiliating itself with one (or more) to enjoy those business features.
SWIFT codes comprise 8 to 11 characters that identifies the Bank. Commonwealth Bank code is: CTBAAU2S
CTBA – Commonwealth Bank
AU: – Country
2S: – CBA Head Office Sussex Street Sydney
3FX: – Branch 367 Collins street, 600: – 1263 Hay Street Perth
Another example: Federal Reserve Bank of New York: FRNY US 33 XXX
SWIFT is a neutral organisation that cannot issue its own sanctions. A decision to block Russian banks from using the system would need to be agreed upon by governments.
Nikolay Zhuralev – vice-speaker of Russia Federation Council: “if Russia is disconnected from SWIFT, then we will not receive [foreign] currency, but buyers, European countries in the first place, will not receive our goods – oil, gas, metals and other important components of their imports. Do they need it? I am not sure,”
China has its own system known as CIPS which it hopes will become a widely used alternative to Swift.
From Zerohedge: “shares tied to China’s Cross-Border Inter-Bank Payments System (CIPS) are surging after Saturday’s decision by Western nations to exclude some Russian lenders from the SWIFT messaging system. Why? Because of what Bloomberg notes is growing speculation that China’s CIPS could become an alternative for those banks”.
And since China will quickly brush off any threats of sanctions if it were to accept Russia banks into its orbit, it is now clear that instead of driving a wedge between Russia and the country that is true the biggest US challenger on the global scene, China, the West has succeeded into bringing the two powers even closer together while putting the fate of the world’s reserve currency in jeopardy, as Dylan Grice explained earlier…
Never seen weaponization of money on this scale before…you only get to play the card once. China will make it a priority to not need USD before going for Taiwan. it’s a turning point in monetary history: the end of USD hegemony & the acceleration towards a bipolar monetary order
– Dylan Grice (@dylangrice) February 27, 2022
There has been constant progress towards de-dollarization in Asia for years now. What China announced yesterday is a huge step in that direction: they stopped emitting credit notes in USD towards Russia in accordance with sanctions, but instead provide credit in Renminbi.
– Nick C (@NickCC32620638)
Additionally, as another alternative to SWIFT, Russia has set up its own network, the SPFS (System for Transfer of Financial Messages). It sent about 2 million messages in 2020, or about a fifth of Russian internal traffic, says the central bank, which aims to up this share to 30 percent in 2023.
Countries that are in dispute with the US know that they run the risk and threat from being cut off from the dominant world payment system – think Iran, Cuba, North Korea, and Syria. Russia would probably have known that for sanctions would have been placed on it and would have prepared for it. If China targets Taiwan, China too will have sanctions placed on it, but they also have planned for it.
The outcomes of sanctions are that countries in dispute with the US/Nato will move together to further develop an alternative payment system that bypasses SWIFT. Large economies like China, Russia and India may trade together using the alternative system. The volume of that trading Bloc may attract further business away from the SWIFT system. The long-term outcome may be the beginning of the breakdown of the hegemony of the US and the dominance of the US dollar.
Michael Cornips is the Managing Director and Founder of Emerald Financial.
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