There’s been a lot of buzz about Swift lately. Most of us have probably just heard it for the first time, but if you keep updated with the news or read the endless barrage of articles coming in daily, you will come across that term quite a lot.
So, what is it?
Swift is short for ‘The Society for Worldwide Interbank Financial Telecommunication’. Although the name is a bit of a turn-off, it’s quite interesting. Since banking has essentially been reduced to 1’s and 0’s, ‘data’ is the operative word here. Think of Swift as the ‘yellow brick road’ for data going back and forth between banks and financial institutions, sending, and receiving payment information. The Washington Post described Swift as "the Gmail of global banking." It’s a part of a big club, and membership guarantees quick and ‘swift’ transfer of money requests around the globe.
Swift was created in Brussels in 1973 and at the time supported 239 banks in 15 countries. Before that, people used the slow and immensely less efficient TELEX system, a name you would have probably heard in old black and white Hollywood classics.
Things have moved a long way since then. There are now 11,000 banks and institutions from around 200 countries in this club. It sends more than 40 million messages a day along an Internet highway, connecting banks, financial institutions, traders, etc.
The saying goes, “Infinite power corrupts infinitely”, and firepower like a vast system of financial inclusivity is no different. Therefore, the system is not controlled by any one country but run by the central banks of the G10 countries, the European Central Bank, and the National Bank of Belgium. No one country would have uncontested authority over Swift.
What does it mean to get excluded from Swift?
If you think of the international banking sector as a high school cafeteria, Swift is basically like sitting at the cool table. It is an inclusive system used by most banks and enforced by the world’s largest economies. Excluding a country from this system is like demoting a high schooler from the football team’s table to the chess club’s table.
Now let’s get serious about it: many economists and TV news reporters have (and morbidly) referred to recent decisions to exclude certain countries from Swift as a “nuclear option”. Being excluded means that a country’s banks would be unable to communicate with banks abroad. Most countries depend predominantly on Swift, and a disconnection from the system would mean an instant stalling of imports and exports, not to mention a huge impact on the country’s citizens. In reality, a country that is highly dependent on Swift would see their GDP shrink by a staggering 5% when kicked out of the club.
Since Swift was introduced, it has quickly been hailed as a go-to system for international banking’s intercommunications process. Swift has no natural replacement since the system is implemented by the G10, the ten most significant economies. Although there have been some attempts to break this monopoly, most modest tries have fallen short of creating a system that competes with Swift. It’s a system that gives the upper hand to large economies and ‘muscles’ others to ‘play ball’.