An Alternative to SWIFT?
by John Lawrence, September 6, 2018
It has become apparent that the US controls the world's monetary system and has weaponized it. Sanctions are used to punish other countries, corporations and individuals. Some of these sanctions are even used to punish US allies if they don't march to the lockstep of the Trump administration. For instance, any US ally that does business with Iran could have sanctions imposed on them. French corporations like Total which have contracts with Iran are forbidden by the US from continuing doing business with them.
Behind most international money and security transfers is the SWIFT system, a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information such as money transfer instructions. Every day, nearly 10,000 SWIFT member institutions send approximately 24 million messages on the network.
So any international transfer of money involves SWIFT, and the US controls SWIFT. Therefore, it can tell SWIFT just not to do any transfers of money from entities that it has sanctioned. This brings commerce to a halt. The important take away is that SWIFT is controlled by the US, not some unbiased and impartial international institution and can be used to impose sanctions.
Investopedia has a simple explanation for how SWIFT works:
SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications. It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.
SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters. The code is called interchangeably the bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code. (See related: What's the difference between an IBAN and a swift code?) To understand how the code is assigned, let’s look at Italian bank UniCredit Banca, headquartered in Milan. It has the 8-character SWIFT code UNCRITMM.
- First four characters: the institute code (UNCR for UniCredit Banca)
- Next two characters: the country code (IT for the country Italy)
- Next two characters: the location/city code (MM for Milan)
- Last three characters: optional, but organizations use it to assign codes to individual branches. (The UniCredit Banca branch in Venice may use the code UNCRITMMZZZ.)
Assume a customer of a Bank of America branch in New York wants to send money to his friend who banks at the UniCredit Banca branch in Venice. The New Yorker can walk into his Bank of America branch with his friend’s account number and UnicaCredit Banca’s unique SWIFT code for its Venice branch. Bank of America will send a payment transfer SWIFT message to the UniCredit Banca branch over the secure SWIFT network. Once Unicredit Banca receives the SWIFT message about the incoming payment, it will clear and credit the money to the Italian friend’s account.
Most Americans have never even heard of SWIFT. That's because most Americans are ignorant of how the financial system really works. In the good old days when everybody thought the US was really benign, it was thought by the international community that it was a good idea to let the US control the world's financial system. Now other countries, especially those that have been sanctioned, are not so sure. They are exploring alternatives to US controlled financial institutions that would avoid US sanctions.