History of SWIFT
SWIFT, which is an acronym for Society for Worldwide Interbank Financial Telecommunications (hence SWIFT), is a messaging network that has been used by banks and other financial institutions all around the globe for almost 50 years. It was created in 1973 in La Hulpe, Belgium, where it is still headquartered.
It now contains over 11 000 institutions across 200 countries and territories. SWIFT is mostly used for messages that are being sent between the financial institutions. It provides fast, accurate and secure information, mostly connected to money transfers or money transfer instructions. Yet, SWIFT itself is not responsible or used for money transactions. It is solely used as a information messaging network.
Why is SWIFT important?
The importance of SWIFT can be portrayed through many statistics, data or the value that it brings to anyone, who is a customer of a bank that uses SWIFT. Just to put it into perspective, the institutions connected to the SWIFT network sent on average 42 million messages per day in the 2021, which was an increase of about 11.4% from the year 2021. This was likely due to prevailing pandemic, the fact that people opted more to cash usage or remote working conditions of workers, who were more inclined to receive their wages digitally, rather than in cash.
Sanctions against Russia, disconnection from SWIFT; Source: shutterstock.com
The importance of SWIFT can be also portrayed by not only stating the number of institutions that use it or by the daily transaction volume, but also by looking at what types of institutions are using it. While these were mostly banks at first, the SWIFT network expanded due to its improved design and scalability to more diverse portfolio of companies.
Amongst others these include brokerage institutions and trading houses, exchanges, depositories, asset management companies, security dealers or foreign exchanges and money brokers. With such a vast number of different companies using SWIFT, its value and importance only rises.
SWIFT also offers variety of different services. These are not only the messaging services that provide information about money transaction instructions. But these are also different business intelligence utilities and tools that the network can use. Moreover, it can also help with the Know Your Customer (KYC) and Anti-Money Laundering (AML) policies, as well as with sanctions.
How is this connected to Russian invasion?
The last point made, the fact that SWIFT can help with sanctions, is also one of the main reasons why you can see SWIFT ever-more present in the media today. Since the Russian army invaded the Ukraine, political leaders all around the world have been looking for an appropriate response. While it is more than clear that none of them wants to intervene with military or army, the financial response seems to be gaining significant traction.
This was highlighted on Saturday evening, when G7 leaders stated that they are ready to cut some of the Russian banks out of SWIFT. This can have significant impact on everyday citizens in the country. The usage of bank transfers, cards, deposits or many other functions can suffer significantly. However, as of now, the authorities have not stated which banks will be cut out and what will be the conditions. This ban might also be reversible once the situation calms down and Russia stops with the attacks on Ukraine soil, but this is uncertain as of now.
Many consider this step to be one of the only measures how to respond to the current situation without the involvement of the military warfare. The ban of usage the SWIFT network is according to many considered to be a “financial nuclear weapon” or an equivalent of the usage of an atomic bomb.
Conclusion
While there are many other sanctions probably coming, most of which are connected to financial world such as freezing the accounts of Russian banks around to world or freezing of assets held by Russian people, is it crucial to keep the sight on what is the most important. And that is the fact the people of Ukraine are suffering from the invasion and occupation by Russian army that has already led to many casualties. Let´s thus hope that the situation settles as soon as possible and ordinary people will be back to normal lives soon in peace.
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