The recent RU conflict involves financial sanctions and mentioned SWIFT. I didn't know this before, so let's take a brief look at it.
SWIFT, whose Chinese name is "Society for Worldwide Interbank Financial Telecommunication", was founded in 1973 and is headquartered in Brussels, the capital of Belgium. Its main function is to transmit settlement information between global banking systems. It is a non-profit organization established to solve the problem that financial communications in various countries cannot adapt to the rapid growth of international payment and settlement. It is responsible for designing, establishing and managing the SWIFT international network to transmit and determine routing of international financial information among members of the organization.
After the establishment of the organization, the number of member banks increased rapidly year by year. Since 1987, non-bank financial institutions, including brokers, investment companies, securities companies and stock exchanges, have begun to use SWIFT. The network has spread to more than 8,000 financial institutions in 206 countries and regions around the world, providing services to the financial industry. Secure message transmission services and related interface software support real-time payment and settlement systems in more than 80 countries and regions. SWIFT was connected to Hong Kong in 1980. my country's Bank of China joined SWIFT in 1983 and was the 1034th member bank of the SWIFT organization. It was officially put into use in May 1985, becoming an important milestone in my country's integration with international financial standards. After that, commercial banks in various countries in my country and the stock exchanges in Shanghai and Shenzhen also joined SWIFT. Up to now, my country's Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, CITIC Industrial Bank, etc. have become members of the Global Banking and Financial Communications Association.
SWIFT's design capacity is to transmit 11 million messages per day, and currently it transmits 5 million messages per day. The funds allocated for these messages are in the trillions of dollars, and it relies on the more than 240 message standards it provides. SWIFT's message standard format has become the standard language for data exchange between international banks.
I have come across various so-called "messages" at my previous employer. Although they are used in different fields, they all have the same meaning. They are between the sender and the receiver through an agreed message format and a specific communication link. Information can be transmitted in real-time or non-real-time, suitable for different scenarios.
SWIFT is mainly used for the transmission of information flow. It does not involve settlement and does not affect the flow of funds. However, almost all international settlements cannot bypass SWIFT. SWIFT's messaging platform, products and services connect more than 11,000 banking institutions, securities institutions, market infrastructure and corporate customers in more than 200 countries and territories. Because of SWIFT's low and fast cost, international capital flows have become easier, and global trade has developed rapidly. With mutual achievements, SWIFT has become a set of information standards for international transactions. For any financial institution, as long as it involves a large amount of foreign trade business, it can be said that joining the SWIFT system has become a must.
Taking RMB cross-border clearing as an example, overseas RMB business participating banks open clearing accounts (i.e. RMB interbank current accounts) with domestic agent banks. When cross-border funds are cleared through the agent bank model, the overseas participating banks first collect the funds through the SWIFT system. The payment information is transmitted to the domestic agent bank. The domestic agent bank handles fund transfers on behalf of the overseas participating banks through the inter-bank payment system or intra-bank clearing system of the People's Bank of China. The domestic agent bank debits and debits the RMB interbank current account to complete the fund settlement with the overseas participating banks. .
Therefore, if a country is kicked out of the international settlement system, it will be unable to pay or receive payments. In today's era of economic globalization, a country's normal international trade and financing capabilities are basically abolished.
North Korea has been directly cancelled. From 2012 to 2019, due to sanctions imposed by this system, Iran's domestic GDP experienced four years of negative growth, and its crude oil exports in 2019 fell by 60%. So this system is called the "nuclear weapon" of the financial world.
However, SWIFT is not the only international inter-bank transfer information system. Its competitors include TELEX, CABLE, etc., but SWIFT's fees are much lower than them. Similarly, there is the IBAN (International Bank Account Number) system that is often used within the EU - although IBAN is currently mostly used for remittances within the EU, in fact its format is also universal. If you want to remit money from China to Europe, you can use the SWIFT system or the IBAN system as long as the bank supports it.
It is worth noting that SWIFT only agrees on the transfer codes and rules, which only involves the transmission of information, and does not involve the real liquidation and capital flow. The real liquidation of funds must be connected with the clearing system of major economies.
Of course, China also has its own payment system - the RMB payment system CIPS. The functions of CIPS and SWIFT are to send and receive transaction instructions between banks without transferring funds or touching funds. Fund payment transfer is mainly realized in the clearing and payment system, which is the most important infrastructure for cross-border capital flows today. As early as April 2012, the People's Bank of China began to organize the independent development of CIPS, whose full name is the Cross-border Interbank Payment System, and it was put into operation in October 2015. When it first started operating, it had settled 19 domestic commercial banks, as well as 38 domestic banks and 138 overseas banks in Asia, Europe, Oceania, Africa and other regions. As of the end of 2020, a total of 1,092 institutions at home and abroad have accessed CIPS through direct or indirect means, including 42 direct participants and 1,050 indirect participants. CIPS’ actual business can reach more than 3,300 corporate banking institutions in 171 countries and regions around the world, of which more than 1,000 institutions are from countries along the “Belt and Road” (excluding mainland China, Hong Kong, Macao and Taiwan).
If all settlement systems impose sanctions on a certain country, then that country's financial institutions will be separated from the international financial system and blocked by the international financial information exchange system, making domestic funds unable to participate in financing between domestic and international financial institutions. All capital and financial activities can only be done by barter or cash transactions. In the current financial system, this kind of blow can be said to be fatal.
Therefore, the fact that the SWIFT international settlement system was cut off this time tells us: eggs cannot be put in one basket, and the huge risks of a single currency need to be avoided in advance.
In fact, not only in the financial field, but also in the technical field, such as databases, many friends know that Oracle has stopped supporting R. This is an important reason why we advocate localization. Facing some environmental problems and some opponents who do not respect martial ethics, you must improve your abilities, otherwise you will be very passive if you are led by the nose. It’s hard to imagine how Apple phones can’t be used, Tesla can’t be driven, and various cloud services can’t be used. What impact will it have on us? Can we respond to this situation quickly? It is foreseeable that this conflict will make the pace of localization even greater, putting forward higher requirements for both technology providers and users.
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