Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

A quick breakdown of what SWIFT is and why it matters

twitter.com

Post reply on HN
Print view View original

121–130 of 496 posts

Re: A quick breakdown of what SWIFT is and why it matters

#121

Post by lxgr »

jaywalk wrote: post #34
TekMol wrote: post #26

I often wonder how money is stored. It can't be just a number on a computer in a bank, right? Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD. Now let's go shopping.". So I guess USD needs to be recognized by the US somehow? Could the US simply "void" all USD that are owned by Russia?

It's mostly just numbers on a computer in a bank. There are regulations concerning what banks can do with those numbers, but it all boils down to people having faith in the system in the end. That's why bank runs can quickly lead to economic disaster.

> That's why bank runs can quickly lead to economic disaster.

That is true, but arguably not a consequence of money being digital, but rather of fractional reserve banking.

Physical vs. digital accounting is largely orthogonal to full/fractional reserve banking.

Re: A quick breakdown of what SWIFT is and why it matters

#122

Post by nimbius »

aluminum96 wrote: post #93
nimbius wrote: post #44

quite a few commenters have pointed out SWIFT as a hand of soft power and i think its important to understand the twitter post doesnt mention an important fact: SWIFT was created in order that Europe may resist Kissingers increasingly capricious hand of soft power as it emerged as a lead sap in an increasingly arbitrary US foreign policy. 40 years ago the US had become effectively drunk on soft-power moves against st…

> in 2022 sanctions are ... effectively meaningless as most capable, observant countries have managed to sidestep in part or in whole the once dominant US hegemony This is only true to the extent that the US unilaterally imposes sanctions. The proposed sanctions involving SWIFT are multilateral, with the support of the entire EU. That's around double the economic power of the US alone, and roughly half of the entire…

this is an excellent point, one i hadnt considered. SPFS only has 23 banks connected to it as of 2020, so if its to be an alternative Russia would have to consider it as an alterative of last resort. just how strong is it?

the consternation im still faced with is "with the support of the entire EU." It may be difficult to secure a resounding vote with the bemoaned sword of Damocles. much heating fuel comes from Russia in the dead of winter.

still other HN posters make a great point (and in other posts too) that every time SWIFT is disconnected, it popularizes alternate markets at the expense of US and EU interest. certainly a stronger SPFS must be taken into account.

Re: A quick breakdown of what SWIFT is and why it matters

#123

Post by dmingod666 »

netsharc wrote: post #60
TekMol wrote: post #26

I often wonder how money is stored. It can't be just a number on a computer in a bank, right? Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD. Now let's go shopping.". So I guess USD needs to be recognized by the US somehow? Could the US simply "void" all USD that are owned by Russia?

As far as I know they really are just numbers in databases, but if it's foreign currency, they can't just magic them out of the DBA's fingers. There probably are ledgers that have to agree with each other, e.g. if a Russian bank claimed it had those 100 Trillion dollars from a Cypriot bank, then the Cypriot bank would have to confirm it gave them that much, and then show everyone the source of that money. Which does…

There was a huge company in china I think, taking loans by using gold bars as collateral.. for years, turned out they weren't gold

Re: A quick breakdown of what SWIFT is and why it matters

#124

Post by ajross »

MatteoFrigo wrote: post #35
TekMol wrote: post #26

I often wonder how money is stored. It can't be just a number on a computer in a bank, right? Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD. Now let's go shopping.". So I guess USD needs to be recognized by the US somehow? Could the US simply "void" all USD that are owned by Russia?

> I often wonder how money is stored. The Bank of England published a summary of how modern banks work. See https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m... > It can't be just a number on a computer in a bank, right? It can and it is, see the BOE paper. > So I guess USD needs to be recognized by the US somehow? This is a complicated question that will start a flamewar, but basically, any bank in the wo…

> This is a complicated question that will start a flamewar, but basically, any bank in the world can create dollars out of thin air given adequate collateral. Read about "Eurodollars".

This is true, but it's actually sort of a specious point. What a eurodollar deposit "really" is, is just a short contract. Your European bank takes your exchange and promises to give you back dollars when you ask for them. That they may not have them right now is just a technical detail. But the value of the dollar is still set by what the market is willing to pay for it. The bank going "short USD" is a risk it takes, not an inflationary pressure per se.

So... sure. Foreign banks can create dollars just like brokerages can "create stock shares"[1]. Except, they really can't. They're just playing accounting tricks.

[1] Or, more relevantly perhaps, how one crypto exchange can create wrapped tokens representing foreign coins. This capability was part of the exploit chain that led to the DeFi hack last month.

Re: A quick breakdown of what SWIFT is and why it matters

#125

Post by stef25 »

KrishnaShripad wrote: post #67
daenz wrote: post #49

Earlier quoted context omitted.

I was watching a mainstream news report (I'll try to find it and edit my comment) where the host and the guest were talking about the impact of economic sanctions. They said it's not intended to stop Russia, but to inflict pain on the citizens, so that they citizens will turn against leadership. In that moment, it really clicked for me how much normal people are pawns to be used in much larger games. And there appare…

> They said it's not intended to stop Russia, but to inflict pain on the citizens, so that they citizens will turn against leadership. Which country has it ever worked out on? Cuba? Venezuela? North Korea? None of them have turned on their dictators. Rather, they are living life in misery. What is worse is they have been not just cut off monetarily from the rest of the World, the dictators have made sure to censor al…

Sanctions would work indirectly in the sense that the people would support regime change even if they can't bring it about themselves, if it means sanctions will be lifted and their standard of living will get better.

I don't think in any of the countries you list there's popular support of the leadership.

Re: A quick breakdown of what SWIFT is and why it matters

#126

Post by lxgr »

TekMol wrote: post #26

I often wonder how money is stored. It can't be just a number on a computer in a bank, right? Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD. Now let's go shopping.". So I guess USD needs to be recognized by the US somehow? Could the US simply "void" all USD that are owned by Russia?

> It can't be just a number on a computer in a bank, right?

It really is, but to answer your second question, it's important to consider *which* bank. There's reserves (i.e. balances of banks at the Federal Reserve) and bank deposits (which really are just numbers in banks' databases).

Having an account at the former is effectively what makes numbers in the database of the latter "real USD".

> Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD. Now let's go shopping.".

They could, but these assets/liabilities would not be backed by any reserves linked to the USD payment rails.

Reserves are theoretically irrelevant (though practically regulated) as far as transfers between accounts of a single bank are concerned. But as soon as a second bank comes into the picture, i.e. for inter-bank transfers communicated via SWIFT or otherwise, all transfers will ultimately be backed by Fed account to Fed account transfers in the background.

> So I guess USD needs to be recognized by the US somehow?

Indirectly so, yes: What makes USD "real" is the ability to transact with the larger ecosystem of US and offshore banks that have a shared agreement on what "real" USD are.

Practically, this means being connected either directly (via a Fed account) or indirectly (via a bank that itself does have a Fed account) to that system.

> Could the US simply "void" all USD that are owned by Russia?

Indirectly, yes: They can force every bank holding USD balances for embargoed beneficiaries to freeze these assets. Failing to comply could, in the absolute worst case, lead to that bank's Fed accounts being frozen as well (which would take away its ability to settle in USD with other banks).

Re: A quick breakdown of what SWIFT is and why it matters

#127

Post by Aunche »

snovv_crash wrote: post #90
mohanmcgeek wrote: post #46

Earlier quoted context omitted.

> Russian bank could just increase that number to whatever they like. Money is an IOU from the bank. So that's what all banks do. But they'll need assets on the right side of their balance sheet.

Bit what if they didn't, and just changed some numbers in their database?

If anyone suspects that, then everyone will try to withdraw their money from their account and they'd soon get exposed of fraud.

Re: A quick breakdown of what SWIFT is and why it matters

#128

Post by thomasahle »

legalcorrection wrote: post #115
aluminum96 wrote: post #93

Earlier quoted context omitted.

> in 2022 sanctions are ... effectively meaningless as most capable, observant countries have managed to sidestep in part or in whole the once dominant US hegemony This is only true to the extent that the US unilaterally imposes sanctions. The proposed sanctions involving SWIFT are multilateral, with the support of the entire EU. That's around double the economic power of the US alone, and roughly half of the entire…

The EU would only go along with this because the US has them by the proverbial balls. European militaries are a joke and there is no domestic political support for building them up.

In this particular conflict, the stakes for the EU is much higher than for the US.

Sure, the US is historically (recent) more happy to go into conflicts around the world, but this is a conflict bordering many EU states. The Baltics, Poland, Slovakia, Hungary, Romania definitely aren't happy seeing Putin on their doorsteps.

Re: A quick breakdown of what SWIFT is and why it matters

#129

Post by jorblumesea »

legalcorrection wrote: post #111
s_dev wrote: post #80

Earlier quoted context omitted.

Nah -- Bill Browder seems to be a expert on this exact topic. He's saying to pull Russia from Swift. His experience suggests he is intimately familiar with the financial world and the consequences. He's the genesis of the Magnitsky Act -- the one thing that actually scares Putin. I know this because Putin even said if Russia was removed from Swift he would consider it an act of war. https://twitter.com/Billbrowder/st…

Him thinking that, however qualified he is, does not mean he's right. Being the CEO of a hedge fund, with a personal grudge against Russia, does not make you infallible. The US benefits enormously from owning the reserve currency and running the world financial system, and the ultimate effect of our trigger-happy approach to sanctions is to push countries away from those, especially with the US becoming a smaller per…

As opposed to random commenters on HN who are likely SWE and not experts in finance or geopolitics?

I hate this trend of "well he's an expert so he might be wrong". Okay, sure, we are all human and make mistakes, but, he's also an expert and you don't become an expert by being wrong all the time. Not sure how many people here are qualified to comment on these events instead of him.

Re: A quick breakdown of what SWIFT is and why it matters

#130

Post by m2fkxy »

legalcorrection wrote: post #115
aluminum96 wrote: post #93

Earlier quoted context omitted.

> in 2022 sanctions are ... effectively meaningless as most capable, observant countries have managed to sidestep in part or in whole the once dominant US hegemony This is only true to the extent that the US unilaterally imposes sanctions. The proposed sanctions involving SWIFT are multilateral, with the support of the entire EU. That's around double the economic power of the US alone, and roughly half of the entire…

The EU would only go along with this because the US has them by the proverbial balls. European militaries are a joke and there is no domestic political support for building them up.

A reminder that two of Western Europe's militaries are nuclear, which hardly makes them "a joke". You seem to be projecting the state of Germany's military to all European forces, which is... questionable.
Post reply on HN