Russia has entered a costly war, that is taking longer than expected. This means the reserves can't easily be used. It may still be able to run for a long time without SWIFT.ġ️⃣2️⃣ But, the West is also freezing central bank assets! Russia's central bank built up foreign reserves to more than $600bn and most of that is held in Euros and Gold. What does a bank do with those?ġ️⃣1️⃣ Russia has been preparing for sanctions Many transactions are also "future dated" meaning they were booked months ago to happen soon. Russia is a major trader of oil and gas, which will still be allowed.
🔟 Applying sanctions to Russia will be an operational nightmare for banks It can cost between $40-$120 to make a SWIFT payment and depending on the complexity of the transaction, a settlement can take 3 days to 3 weeks to complete.ĩ️⃣ The US Dollar is the dominant currency in SWIFT, which gives the US a dominant influence in the global economyĪccording to SWIFT, more than 50% of transactions are in USD, 30% in Euros, and 5% in GBP.
SWIFT creates a shared rule book, but to move money, banks must build a "correspondent banking relationship." Like getting married to another bank, they do a lot of diligence on that bank, because they rely on that bank to be good at detective work too.Ĩ️⃣ This detective work also makes international wires via SWIFT expensive This takes a lot of human and manual effort and is the same process for every payment.Ħ️⃣ The cost of getting it wrong can be huge for banksīNP Paribas was fined $8.9bn in 2015 for failings related to Iranian, Sundanese and Cuban transactions they allowed and facilitated. This "complex hierarchy" means detective work.ĥ️⃣ The "pre payment detective work" is why international wires can be slow Hard when it's a company owned by a holding company in Panama.
These messages happen instantly but the payments may not get applied immediately because.īanks must follow rules like blocking transactions to entities that governments add to sanctions lists.īanks apply sanctions by "knowing their customer." Easy when your customer is a consumer. Money moves when a bank updates its accountsīanks go through a series of messages to say who needs to get paid and for how much. SWIFT is a messaging system used by 11,000 banks in 200+ countries.Ģ️⃣ SWIFT doesn't move money, banks do. Lots of people have been explaining SWIFT, but most explainers miss some key details.
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