In the era of global trade, countries are looking for safer and more secure ways to transfer funds between banks. Networks and intermediaries are often needed to ensure the smooth execution of international transactions. SWIFT Banking System is the name of the organization that facilitates international interbank financial communications.
Swift Banking System
With the introduction of this monetary system, banks send and receive money more conveniently and securely with each other. The reason for using the word “communications” is that in the following lines we will see how SWIFT is nothing more than a way of communication between financial institutions. In these transactions, payment instructions are transmitted electronically by the payer.
What Is Swift?
The SWIFT protocol is used to transfer money between two banks. The transaction is made through a link between their commercial accounts as soon as the message between them is received. A fee is also charged.
A financial intermediary can help the institutions if they do not have a direct connection, and in addition to the fee, he will receive another commission.
How does this monetary system work?
SWIFT is designed to help banks communicate faster, more securely, and more efficiently in their original form. Especially with international money transfers. It acts as an instant messenger between credit institutions, thus transmitting instructions to the receiving bank on how to process the payment.
Only banks participating in the monetary system can transfer money from one account to another using the method described earlier.
What makes SWIFT so successful?
What makes this monetary system so popular is its simplicity. Thanks to its constant innovation and user-friendliness, this is an excellent payment instruction system. Today, its competitors such as Ripple are available on the market, but financial institutions still rely mainly on SWIFT. In addition to banks, it can also be used in commercial companies, asset management companies, stock exchanges, currency exchange offices, and treasure markets.
Could this service be a factor in the war between Russia and Ukraine?
Excluding Russia from SWIFT would significantly affect the country’s economy. Former Russian Finance Minister Alexei Kudrin estimates that the country’s GDP will shrink by 5%, given the circumstances. In 2014 then-President Medvedev likened such a sanction to a declaration of war after the United States considered removing the Russian Federation from the platform at the time because of the annexation of Crimea.
The Slavic state will suffer from this move because it relies on oil and gas exports, which account for 40% of its revenues. Although Russia and China have created alternative payment systems that they can use, the Atlantic Council notes that they are significantly smaller than SWIFT and would not sufficiently compensate for their suspension.