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A quick breakdown of what SWIFT is and why it matters

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

#201

Post by csomar »

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?

They can "print" as many USD as they want in-house. But in order to process transactions abroad, they need a US bank account. They can't print money in that.

The US sanctions (freezing their US assets) has more effect, in that regard, than a SWIFT blockade. The US seems to be the interested party in this war, and Germany is much less enthusiastic about it. Remember, SWIFT is a Belgium company and the US has been hostile to European financial institutions lately.

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

#203

Post by pgwhalen »

dcolkitt wrote: post #104
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?

Let's just talk about USD specifically. (Other currencies work pretty similar, just with different central banks.) The "single source of truth" is the Federal Reserve. Member banks (about 10,000 US domestic banks) can hold reserves directly at the Fed. Any reserve bank can directly transfer Fed reserves to another member bank or to the US Treasury using FedWire. The Fed "creates money" simply by crediting a member ba…

I have been learning (via books, podcasts, coursera, etc.) about what money is and how it’s created, both domestically and internationally, both in commercial banks and central banks; and let me just say this is a superb summary of all of that. Bravo!

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

#204

Post by vishnugupta »

andrepd wrote: post #88
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.

> But they'll need assets on the right side of their balance sheet. [citation needed]

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

"Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money."

So on the asset is a loan made by the bank.

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

#205

Post by Hamuko »

beambot wrote: post #188
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? And yet people question the utility of a decentralized, trustless, public ledger -- ie. blockchain.

Which is not just a number on a computer, right?

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

#206

Post by MatteoFrigo »

lokar wrote: post #191
ajross wrote: post #124

Earlier quoted context omitted.

> 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 m…

Exactly, they don't give you dollars, they give you a dollar denominated liability.

Just to make sure we are speaking the same language: If I have $1 in a checking account in a US bank, do I have one dollar, or do I have a dollar-denominated asset of $1 face value, backed by a dollar-denominated liability of the bank?

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

#207

Post by errantmind »

jancsika wrote: post #198

> A cutoff from SWIFT may also have longer-term second-order effects on Bitcoin and non-fiat currencies. And remember that Bitcoin has a fascinating property here-- the more demand there is for transactions on it, the better it gets at scaling for something approaching SWIFT level of transactions. Oh wait I'm thinking of Bittorrent's scaling wrt popular torrents. Yeah, Bitcoin's ability to scale is complete shit.

Bitcoin's Lightning Network scales just fine, but based on your comment it doesn't look like you are interested in how Bitcoin works, instead wanting to jump on a bandwagon.

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

#208

Post by csomar »

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…

Cuba/NK are much smaller countries. For Venezuela, it insured the country cannot function properly. Russia is huge. Russia becoming the next Venezuela will trigger a sequence of events that will lead to its de-fragmentation into smaller states. (ie: Chechnya will probably go rogue)

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

#209

Post by lisper »

waterheater wrote: post #168
snovv_crash wrote: post #90

Earlier quoted context omitted.

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

Then you have fraud, likely leading to an economic crisis. Consider the 2007-2008 financial crisis. Abstractly, investors believed that homes had significant value until, one day, society realized the value didn't exist in reality but only "on paper." We know that investment bankers were hiding the problem until the proverbial lid blew. You might consider that our current financial paradigm has never been tried befor…

> We know, however, that they don't.

We know no such thing. The only objective fact is that there have been fewer financial crises since the dollar went off the gold standard than before.

Financial controls don't work perfectly, but having money tied to a commodity is fraught with its own difficulties. It's actually quite handy to have fine-grained control over the money supply that is not coupled to external physical circumstances because then at least we have the option of controlling it to produce better outcomes even if we don't always succeed.

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

#210

Post by ajross »

MatteoFrigo wrote: post #206
lokar wrote: post #191

Earlier quoted context omitted.

Exactly, they don't give you dollars, they give you a dollar denominated liability.

Just to make sure we are speaking the same language: If I have $1 in a checking account in a US bank, do I have one dollar, or do I have a dollar-denominated asset of $1 face value, backed by a dollar-denominated liability of the bank?

Reserve requirements at US banks are regulated by the US government as one of many mechanisms used to control the money supply. So... yes, sure. It's complicated, but a dollar at a US bank is a "dollar", because that's what "dollar" means.

The contention upthread was that foreign banks could do the same thing to print dollars. And, again, it's complicated. They sorta can, but only in the sense of placing a gargantuan short bet on the dollar. (A ton of short selling on a small security can push the price down for the same reason). So no one does that, because no bank wants to play that kind of game (or is allowed: all those large foreign banks are themselves regulated by their own national regimes).

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