SWIFT exists not for the purpose of providing the rail(s) upon which money moves but to be the messaging system which coordinates said transfers. When sending funds (typically done via a document called a MT103, which is a text file with specific formatting requirements) one informs the recipient institution by sending a SWIFT message. When it is time for the banks to actually move the funds (which often times occurs significantly after the funds are made available to the client in question) this will be coordinated through a payment system. In most cases in Europe, this is TARGET2. However, as Russia is not a member of the Eurozone, many of their impacted payments will likely be on the STEP2 payment network, which is the only European-wide clearing house. (However, these days, it isn't uncommon for banks to work together to use multiple clearing houses across multiple jurisdictions to most efficiently move funds.)
From what I understand from banks and clients we work with who have a significant Eastern European nexus, Russia was already experiencing problems with the payment systems before the formal SWIFT bans were announced and that the effective shutdown of central bank settlements for Russia has served to bring international payments coordination for RU based institutions to a crawl.
Happy to add clarification where it could be useful.
You are probably more educated on this, but I'm an Iranian and Iran was the only country so far that was banned from SWIFT. And it was a very very big deal. The banks could not deal with anywhere in the world and it become very difficult to send or receive money.
The EU tried to setup an alternative to SWIFT [0] so they could work with Iran but it didn't really work out.
[0] https://en.wikipedia.org/wiki/Instrument_in_Support_of_Trade...
[0] https://twitter.com/M_S_Billingslea/status/14984295311951544...
Also, in Iran's case there's the FATF issue which doesn't yet exist regarding Russia.
One would obviously hope that the cumulative effects of the various sanctions make it difficult or impossible for Russia to continue with business as usual.
However, part of me worries about the abilities of the oligarch network.
I mean, if you look at the various flight tracking websites. Sure a lot of the commercial aviation traffic has been killed off, but there are still large numbers of private jets floating around in and out of Moscow. How is this possible ? Because the sanctions are only against Russian registered aircraft, and most of those private jets are registered elsewhere and/or are hidden behind charter companies registered elsewhere.
Quite possibly this extends to finance ? I imagine there is potential to find alternative financing routes. It wouldn't be able to last forever, for sure, but might last longer than the West anticipates.
I don't think it's so much that, but the UK and US bans on dollar clearance for banking which happened a few days before the SWIFT block actually did 90% of the work that the SWIFT ban is getting the credit for.
It's like turning off the metadata layer two days after putting an axe through the ethernet cable.
The ban makes it much harder to make settlements.
now translate that to international cross-border transactions and we have a bypass. do iranians accept crypto as in other countries (to be fair, even india is far far behind but the recent acceptance by imposing tax is seen in a good light overall)
Dead Comment
Money in banks is in the end just information stored in ledges about who owns who money. If a transaction occur within a bank it just numbers of one account getting an relative change to an other account. If an transaction occur between banks, the banks has a relation and the bank own ledger get changed, in addition to the individual accounts. With a clearing house you add a middle man that takes up part of the risk if either bank would fail in their obligation to honor the ledger. The actually movement of physical funds and valuables is quite rare and don't general occur from single transactions.
If you can't transfer the information then the system of transferring information stored in ledges stop working. One can go out-of-band, but that assumes the other party is also willing to do so, and that there is no law/agreement against by-passing sanctions.
When I send a message to the other US bank saying "Hey, I sent you $1,000,000. Of that, $10,000 is for John Doe, $10,000 for Jane Smith, $5,000 for Alice, $5,000 for Bob, ......" that's SWIFT.
A "bank day" is basically the sum at the end of the day that bank A own to bank B. No physical money get transferred unless the US Federal Reserve requires it, which if both banks has fairly similar outgoing debt to each other the accounts won't change by much. the US Federal Reserve don't see the "$10,000 is for John Doe, $10,000 for Jane Smith", only the sum of all transaction going from A to B or B to A.
Bank A tells bank B that "I told the US Federal Reserve to update your account by +$1,000,000 and reduce my own account by same amount, and you can verify this by talking to the US Federal Reserve and checking your account. The items that those +$1,000,000 represent are listed here. John Doe get $10,000, Alice get $5,000, ...". This occur through the SWIFT protocol. Bank B then do the same by first telling US Federal Reserve and then giving bank A the list of the individual items.
The US Federal Reserve don't really transfers money. They simple managed the ledgers for banks relation with other banks. What occurs is simply a ledger being updated about how much bank A is in dept to bank B, and wise verse. The federal bank will step in if a bank defaults, or I guess if the differences between A and B becomes too great to manage.
It's not. At least not in the short term.
Indeed, as implied by the name.
“ Society for Worldwide Interbank Financial Telecommunication”
There will still be some facility to do it via China, but China's largest banks are also baulking (mostly because of the rapidly imploding value of the Ruble meaning they don't trust Russian banks to actually send the requisite funds than any great moral imperative I expect by the result is the same), and any Chinese services still willing to co-operate are going to extract a very, very hefty tithe from the Russians to enable it.
China would be keen on establishing and testing an alternative to SWIFT & CHIPS, the US stranglehold on financial systems, as they know the US would use it serve her geopolitical interests.
Looking at the number of countries sanctioned, there is no dearth of customers.
This reminds of Borg from Star Trek, more you use your weapons against them, faster they adapt.
A world without blockchain - How (inter)national money transfers works
https://media.ccc.de/v/33c3-8315-a_world_without_blockchain
Interesting. That makes SWIFT sound like a sort of digital Hawala system.
This was why the 2008 financial crisis was such a risk; it's perfectly normal for banks to lend hundreds of millions to each other overnight to keep the payments system open, at near-zero interest rates because the risk is zero. But what if the risk isn't zero? What if there's a very real risk that your bank lends $100m to a bank that doesn't open the next day and you have to get in the bankruptcy credit line? Payments would have to slow down or stop happening or dramatically increase in cost.
Hence the decision to lend hundreds of millions to every vaguely bank-shaped object to keep the payments system running. It mostly worked, the money was almost all repaid (in fact I think it made a profit in the US?), and incidents of customers queuing at banks or collateral damage to businesses unable to make payments through no fault of their own was minimal.
I chuckled, thanks a lot. But numeric money and banking exchange is already based on trust, trust of correct and consistent traceability of exchanges being written by both parties. Hawala is solely based on reputation, and has the very convenient side effect that there is no traceability whatsoever. Doesn't looks like swift to me :)
Final settlement honestly may never occur.
Also I get it that SWIFT filled a need in the olden days, but with internet+messaging systems in general now available ww why don't banks use something more modern and less expensive? I am not hinting at blockchain. Eg they could use sth like email, telegram, some private incarnation of that, to send their MTx messages, or whatever.
The "legacy" SWIFT standard , called MT, was (retroactively) made into an ISO standard itself - ISO15022. Currently it is expected to coexist with ISO20022 on the same SWIFT network for 5 years, no idea which % of traffic is MT and which is ISO20022 though.
So anyway - The SWIFT network can carry either traffic.
As to why the SWIFT is not replaced.... it's not _that_ expensive, if you're a bank, and there is a huge network effect: If all your friends (other banks) are on network X, you really want to be there too, even if you maybe don't like too much how it's run and its cost.
Additionally, it provides a lot of convenience which would be really painful to reimplement - and it would be massively antieconomic to implement it unless you can spread the cost over as many participants as possible (so you're basically trying to create another SWIFT - and there are already plenty of alternatives, though none with the reach and trust SWIFT offers).
Said convenience is, for example, delivery confirmations, ability to replay any message up to 2 months ago, guarantee of every participant (bank)'s identity, non-repudiation. Oh and extreme resilience, which doesn't hurt.
But this misses the main value proposition, which I perceive as the trust in the institution: they've been doing exactly this job for longer than I've been alive, they're a neutral operator, simply carrying everybody's traffic and being truthful about what passes through their pipes. If you send a message through SWIFT, you won't be able to deny that, and the banking community will consider you committed to what you wrote. If you denied that you did, SWIFT would be able to replay the message (even without your consent, if coerced by authorities). And they will not agree to "lose" a message you regret sending - their entire value to the banking community would go to 0 in a moment.
Finally, they're a cooperative - participating banks actually own a stake, and profits just get redistributed (more or less), so it's not like they are sucking an inordinate amount of money away from the banking system and keeping it to themselves.
Regarding your first question - ISO20022 currently requires a parser to convert ISO20022 information into a MT message. This is automated in SWIFT gpi and compatible softwares.
Well, I won't be surprised to see blockchains like XRPL, Stellar and Algorand to be part of the ISO 20022 standard [0]
[0] https://finance.yahoo.com/news/iso-20022-cryptos-5-compliant...
In addition to that, SWIFT has something called MyStandards, which basically enables financial institutions to create/share/use their own message formats. Insert XKCD-927.
1 - there are other ways to coordinate payments!
2 - that the actual fund movement is handled through other means than SWIFT.