
Society for Worldwide Interbank Financial Telecommunication (SWIFT)
Mar 27, 2022
Society for Worldwide Interbank Financial Telecommunication (SWIFT)
Q What is the context ?
A The U.S., Europe and several other western nations are moving to exclude Russia from SWIFT, an international network for banks worldwide to facilitate smooth money transactions globally.
Q What is SWIFT?
A
- SWIFT is an international network for banks worldwide to facilitate smooth money transactions globally.
- It is basically a messaging network used by banks and financial institutions globally for quick and faultless exchange of information pertaining to financial transactions.
- The Belgium-headquartered SWIFT connects more than 11,000 banking and securities organizations in over 200 countries and territories.
- First used in 1973, it went live in 1977 with 518 institutions from 22 countries, its website states.
Q What exactly is it?
A
- SWIFT is merely a platform that sends messages and does not hold any securities or money.
- It facilitates standardized and reliable communication to facilitate the transaction.
Q How does it facilitate banking?
A
- Each participant on the platform is assigned a unique eight-digit SWIFT code or a bank identification code (BIC).
- If a person, say, in New York with a Citibank account, wants to send money to someone with an HSBC account in London, the payee would have to submit to his bank the London-based beneficiary’s account number along with the eight-digit SWIFT code of the latter’s bank.
- Citibank would then send a SWIFT message to HSBC. Once that is received and approved, the money would be credited to the required account.
Q How is the organization governed?
A
- SWIFT claims to be neutral. Its shareholders, consisting of 3,500 firms across the globe, elect the 25-member board, which is responsible for oversight and management of the company.
- It is regulated by G-10 central banks from Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, the UK, the US, Switzerland, and Sweden, alongside the European Central Bank.
- Its lead overseer is the National Bank of Belgium.
- The SWIFT oversight forum was established in 2012.
- The G-10 participants were joined by 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, Middle East, and Africa are highest contributors to SWIFT.
Q What happens if one is excluded from SWIFT?
A
- US excluding Russia from SWIFT could have serious repercussions on how Russian banks carry out international financial transactions.
- If a country is excluded from the most participatory financial facilitating platform, its foreign funding would take a hit, making it entirely reliant on domestic investors.
- This is particularly troublesome when institutional investors are constantly seeking new markets in newer territories.
- An alternative system would be cumbersome to build and even more difficult to integrate with an already expansive system.
Q Are any countries excluded from SWIFT?
A
- Iranian banks were ousted from the system in 2018 despite resistance from several countries in Europe.
- This step, while 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.