Society for Worldwide Interbank Financial Telecommunications (SWIFT) Image: iStock
Swift has been in the news lately because it could influence how Russia conducts financial transactions with the rest of the word.
Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a member-owned cooperative that provides safe and secure financial transactions for its members by allowing individuals and businesses to take electronic or card payments even if the customer or vendor uses a different bank, according to Investopedia.
The system assigns each member institution a unique ID code that identifies not only the bank name but also country, city, and branch.
Swift is the way the world moves value and was established to find a better way for the global financial community to move value in a reliable, safe and secure way that can be completely trusted, reads the description on its website.
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What does it have to do with Russia? Russia is a member of Swift and according to Zoltan Pozsar, strategist at Credit Suisse Group AG, the decision to exclude various Russian lenders from this important financial messaging system could lead to missed payments and giant overdrafts in the international banking system, as well as encourage monetary authorities to reactivate daily operations to supply the market with dollars.
“Exclusions from Swift will lead to missed payments and giant overdrafts similar to the missed payments and giant overdrafts that we saw in March 2020,” Pozsar wrote in a note. “Current excess reserves and reverse repurchase agreement facilities will not be enough and monetary authorities will need to act.”
According to the Russian National Swift Association, Rosswift, Russia is the second-largest country after the United States regarding number of users and about 300 Russian financial institutions, more than half in the country, are members.
If Russian banks are removed from Swift, they will be unable to make or receive payments with or from foreign financial institutions in trade transactions.
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