The SWIFT system a global network that enables financial institutions
The SWIFT system is a global network that enables financial institutions to send and receive information and instructions about money transfers in a secure, standardized and reliable way. SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication, which is a member-owned cooperative that provides the messaging platform and services.
The SWIFT system does not hold or
transfer any funds, but it facilitates the communication between banks and
other financial entities that use different systems and languages. To do this,
SWIFT assigns each member institution a unique code with either eight or 11
characters, known as a bank identifier code (BIC) or SWIFT code. This code
identifies the bank name, country, city and branch.
The SWIFT system is used for
various types of financial transactions, such as cross-border payments, trade
finance, securities settlement, foreign exchange and treasury operations. It is
also used for regulatory reporting and compliance purposes. The SWIFT system
handles billions of messages and trillions of dollars every day.
The SWIFT system is considered to
be the backbone of the global financial infrastructure, as it connects more
than 11,000 institutions in over 200 countries and territories. It also plays a role in international politics and
sanctions, as some countries have been excluded or threatened to be excluded
from the SWIFT system as a form of pressure or punishment.
Some alternatives to the SWIFT system are:
- CIPS: This is China’s Cross-Border Interbank Payment System, which processes payments in Chinese yuan. It was launched in 2015 by China’s central bank with the aim of internationalizing the use of the yuan and reducing its dependence on the dollar. CIPS still relies largely on SWIFT for cross-border messaging, but it has the potential to operate on its own messaging system. CIPS has an expansive network of 1,280 financial institutions.
- SPFS: This is Russia’s System for Transfer of Financial Messages, which is a ruble-based payment system. It was set up in 2014 by Russia’s central bank as a response to the threat of being cut off from SWIFT due to Western sanctions. SPFS has been limited to domestic use, but Russia is working with China to connect it with CIPS to work around the SWIFT ban. SPFS has a much smaller network of 400 users.
- UPI: This is India’s Unified Payments Interface, which is a real-time payment system that allows users to send and receive money through their mobile phones. It was launched in 2016 by India’s central bank and the National Payments Corporation of India. UPI enables interoperability among different banks and payment service providers. UPI has been widely adopted in India and has also expanded to other countries such as Singapore and Bhutan.
