Superficially about SWIFT/Many people know SWIFT, but about its essence and how it can influence ordinary people?
Most perceive such an abbreviation "SWIFT" as something related to the transfer of money from one entity to another, and recently, causing particular concern among some participants in settlement and monetary relations, both in Belarus and in Russia, when they begin to talk about its disconnection or blocking within the framework of American and Western sanctions.
So what is SWIFT?
Let's try to explain in a simple form for ordinary people its essence and meaning in monetary calculations.
To understand SWIFT, you need to understand the essence of the bank transfer itself, with which it is directly connected: how to make it and what the process of debiting and crediting is.
How bank transfers work
In order to make a bank transfer, the sender needs to create a payment order. For non-cash payments, it can be created by both individuals and legal entities.
In most cases, the payment order has an electronic form, which is formed by the user in a personal mobile application, an Internet client or in the Bank-Client system for legal entities.
A payment card is essentially an order to the bank to transfer the client's funds from one current account to another.
It specifies the mandatory details of both the Payer and the recipient (Beneficiary):
- name of the servicing bank and the recipient bank;
- bank identification numbers (BIC – bank code) of two organizations between which funds are transferred;
- full name of the participants in the transaction;
- purpose of payment;
- settlement accounts - from which the money is transferred and to which;
- UNP of the sender and beneficiary;
- the amount of funds transferred in numbers and in words.
After the customer (payer) has sent the payment order to the bank, the bank employee checks it, and if it meets the established requirements (correctly filled in) accepts it for execution.
And that's what happens next.
3 bank transfer schemes are possible:
1 - The transfer is made from the account to the account of the client of one bank
As, for example, in our example, where Firm A (Director Petya) issued a payment order to transfer 100 rubles to Firm B (Director Dima).
Since the settlement accounts of Firm A (Petya) and Firm B (Dima) are open in the same bank, then this servicing bank will simply make a posting in its ledger on debiting funds from one account and replenishing another and no more. The payment is fast and does not take much time (within a few hours).
2 - The transfer is made from the account to the account of the client of another bank, but within the state
And if Firm A (Director Petya) needs to transfer money to Firm B (Director Kostya), which is serviced by another bank, but within Belarus?
The National Bank (NB) of the Republic of Belarus is already involved in the process here.
In accordance with the law, all banks operating in the Republic of Belarus must have accounts opened with the National Bank of the Republic of Belarus. The account of each bank is registered with the National Bank of the Republic of Belarus and is called a correspondent account (NOSTRO account).
The National Bank of the Republic of Belarus has an accounting book, which takes into account the movement of money between banks on their correspondent accounts.
Let's say Petya wants to transfer 100 rubles. from his «green» bank Coste to «blue».
Having received the appropriate order (payment card), the green bank (in which Petya is serviced) reduces the balance of funds on Petya's account and sends a request to the National Bank of the Republic of Belarus so that 100 rubles from his correspondent account goes to the account of the blue bank for further crediting to Kostya's account - about what the relevant entries are made in the NB's accounting book.
Therefore, money sent to customers of other banks reaches the addressee a little longer (1-2 days).
According to this scenario, the National Bank of the Republic of Belarus makes payments only between Belarusian banks.
3 - The transfer is made from the account to the account of the client of another bank located outside the state (international payments)
Let's say Petya has an account in US dollars, and Petya also has a partner in America, John. John has an account in some American bank. Petya instructs his bank to send John $10.
And now what should the green bank do with such an order?
The scheme by which Petya transferred money to Kostya will not work, because the National Bank of the Republic of Belarus makes payments only between Belarusian banks. Accordingly, the bank must have some other account from which it can transfer money in America. And he is.
Belarusian banks can open accounts in foreign banks.
Thus, having received a request from Petya for a transfer to John, the Belarusian bank debits $ 10 from Petya's account and sends a request to an American bank to transfer money from his account to John. And every bank has a lot of such foreign accounts. They are available in every country to which the bank can make transfers.
Accordingly, in order to make a transfer to another country from your bank, you must open a bank account in that country. And if for some reason this account is blocked, then the bank's clients who have fallen under sanctions will not be able to transfer money to this country.
Well , what does SWIFT have to do with it ?
From all of the above it is clear that all bank transfers are just an exchange of information.
In order for transfers to go faster, there must be some kind of unified system in which banks can quickly exchange information.
And it is. This system is called SWIFT.
We can say that this is a chat for banks.
Simply put, with any movement of money between different banks, a message is simultaneously transmitted in the SWIFT system confirming the correctness of this transaction.
SWIFT implies only the transfer of information for the execution of a payment transaction. The payments themselves are made by the banks themselves through the basic payment network.
If you disconnect a bank from this chat, it will not lose the ability to make transfers, and it will still be able to exchange information between banks, only it will not be so convenient and fast.
This can be compared to switching from an iPhone to a pager.
Many associate SWIFT with a payment system. But this is not the case.
In fact, SWIFT/SWIFT does not transfer money, but only transfers information about the operation. The system supports one of the MT103 message types, which allows one bank to give an order to another to transfer money between the accounts of clients of these banks. At the same time, the system itself monitors the actions of all banks participating in the transfer so that funds are debited and credited quickly and safely.
Simply put, when an importer pays for his goods and services to suppliers, the importing bank debits the importer's account and places this amount in NOSTRO (his account in a foreign bank) and sends a message via SWIFT to the foreign beneficiary bank to debit his NOSTRO and credit the beneficiary with the same amount. This message is called MT103.
SWIFT helps in transferring money.
SWIFT assigns each financial institution a unique code. This code consists of 8/11 characters and is called SWIFT CODE.
Suppose a customer of Bank A, a branch in Trivandrum, India, wants to send money to his friend who works at Bank B, a branch in Paris, France.An Indian can enter the branch of his bank A by specifying the account number of his friend and the SWIFT code of Bank B.Bank A will send a SWIFT message about the payment transfer to the branch of Bank B via the secure SWIFT network. As soon as Bank B receives a SWIFT message about the incoming payment, it will write off from an Indian bank account and will transfer money to a friend's account.
It is very important to keep in mind that SWIFT is only a messaging system, it does not contain any funds or securities. Actual funds are transferred using other methods. SWIFT/SWIFT only transports messages about transfers.
Regarding sanctions !
It is not possible to disconnect the country from SWIFT. It is possible to disconnect from this communication system directly only the banks themselves. That is, regarding the disconnection of Belarus and Russia from SWIFT, this means that it is necessary to carry out this procedure with respect to each bank of these countries.
What can it threaten?
It will not affect the calculations within the country. Both Belarusian and Russian banks can switch to work with each other using only a domestic system (for example, Russian-made) – Financial Message Transmission System (SPFS). 335 users have already been connected to the system, including 38 foreign participants from nine countries.
To date, all Belarusian banks are connected to the SPFS.
International payments will also take place, but much longer. This is primarily noticed by businesses working with foreign companies. The money will take longer to go to Belarus and longer to leave it. It is possible that some foreign banks will join the SPFS.
If blocking the accounts of both Belarusian and Russian banks in other countries makes it impossible in principle to transfer money to these countries, then blocking SWIFT simply slows down their movement, since it will be necessary to look for other ways of communicating with foreign banks.
The way out of this situation is the connection of foreign banks to the SPSF, which, in fact, is an analogue of SWIFT and a good alternative in international settlements, just not as hyped and uncontrolled by Brussels, where SWIFT headquarters are located. But will the banks of foreign countries do this under the conditions of sanctions pressure ?
It will be more disastrous for domestic business not to disconnect banks from SWIFT, but to block their accounts abroad. That's when there will be no physical opportunity not to pay abroad, not to get money from there.
SWIFT has nothing to do with ordinary citizens, only indirectly. Disconnecting banks from SWIFT will "put a spoke in the wheels" of a business where ordinary people work, which means that its costs will increase, and therefore this may affect their salaries.
Whether SWIFT affects payments using Visa and MasterCard bank cards, read in the following material.
SWIFT in a simple way - what it is and how it works: what is the threat of blocking ordinary people - Something like that!
