What is SWIFT? Here's how Russian banks got cut out of the financial system. (via CNBCi)
Effective communication systems are the backbone of how the world stays connected, from mobile phones, email networks, to banks.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.
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 or her 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."SWIFT has been thrown into the spotlight with the Russian invasion of Ukraine, after which numerous Russian and Belarusian banks were removed from the SWIFT network as part of economic sanctions.
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.Caroline Malcolm, who heads international policy at blockchain data company Chainanalysis, acknowledges that a legacy system like SWIFT is hard to detach from.
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