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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

#481

Post by baby »

sealthedeal wrote: post #476
baby wrote: post #445

Earlier quoted context omitted.

I thought swift was just a protocol that banks used to talk to one another. If so how can it be used to cut russia? I’m guessing I’m missing a part where it is some centralized server somewhere?

It’s just how banks tell one another money is coming to them. Without Swift money would just be showing up and no one would know wtf was going on.

I'm not sure I understand, how does "money show up"? Do you mean that bank A doesn't have an account at bank Z, so they must take another route A -> B -> Z, and thus at some point bank B might credit bank Z account and bank A needs to tell that to bank Z?

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

#482

Post by baby »

sealthedeal wrote: post #473
_448 wrote: post #287

Earlier quoted context omitted.

How does one connect to the SWIFT network? Say, someone wants to start a company for providing some financial service like fund transfer across borders, then connecting to SWIFT will be very helpful. I was always fascinated by how all this works and what does it take to directly use the SWIFT network. Any insights on this will be really helpful.

You can go online to swift and apply. Large corporates can actually be members. We access the SWIFT network through a myriad of different banking and financial institutions we have created partnerships with. I.e. if you go and create a neobank through a baas provider you will inadvertently get access to SWIFT, it won’t be direct but you have access. To get true access you have to go through and insane process and hav…

So am I right that SWIFT not only gives you a protocol that you can use to interop with other banks, but also some sort of DNS system that tells you how to send money to almost any other bank? This makes me think of the Bitcoin lightning network a bit as well. To reach bank Z, bank A needs to find a route of pairs of banks that can perform settlements, so there must be some sort of routing table to do that. That routing table is probably a service that swift provides and thus if they cut the russian banks from accessing this, they wouldn't be able to figure out how to reach other banks.

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

#483

Post by baby »

lxgr wrote: post #303
rocgf wrote: post #275

Earlier quoted context omitted.

Well, since you semi-offered... :) Could you explain this to me like I am a complete moron? I understand that SWIFT allows for international payments, but I don't understand exactly how it differs from a normal bank account transfer within the same country.

When people say SWIFT, they usually mean "international payments via correspondent banking". SWIFT is just a messaging layer to enable that. Look into correspondent banking if you're curious how all of that works – SWIFT is just one (very popular) way correspondent banks can communicate with each other and/or look up paths to facilitate international payments for their account holders.

How does one look up a route? Is it a SWIFT centralized service? In that case, could it be what they want to cut from the Russian?

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

#484

Post by baby »

kuprel wrote: post #265
sealthedeal wrote: post #257

CEO and co-founder of Routefusion here, a cross-border bank to bank payment API. We use the SWIFT network regularly. I can 100% confirm that all money in the world is just literally numbers, and it is balanced by the different federal reserve systems around the world to ensure no one can "create" money without notifying everyone. I guess if I was super cool I would do an AMA because this is the only thread that is re…

Sounds like decentralized consensus in crypto world

I wouldn't call this consensus, as there is no global view and "total ordering" of transactions. Different parties have different views of who owns what, and extremely partial views at that.

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

#485

Post by lxgr »

baby wrote: post #483
lxgr wrote: post #303

Earlier quoted context omitted.

When people say SWIFT, they usually mean "international payments via correspondent banking". SWIFT is just a messaging layer to enable that. Look into correspondent banking if you're curious how all of that works – SWIFT is just one (very popular) way correspondent banks can communicate with each other and/or look up paths to facilitate international payments for their account holders.

How does one look up a route? Is it a SWIFT centralized service? In that case, could it be what they want to cut from the Russian?

Not too familiar with that process, but as far as I understand, these routes (i.e. correspondent banks per currency/country and their reachability over settlement networks) are called "Standing Settlement Instructions". SWIFT does seem to offer these as a service [1].

But just like the messaging layer, this can be done via other means. For example, here [2] is Citibank Poland declaring their reachability for various currency transfers.

As for the messaging service itself, I believe that cutting off SWIFT SSI access would help in disrupting payment flows in the short term, but in the long term, sanction lists are the real enforcement mechanism.

As others in this thread have already said, these are a very powerful indirect stick when implemented as "you must adhere to our embargo lists, or we will prohibit all of the banks in our jurisdiction to do any kind of business with you, whether for embargoed clients or others".

[1] https://www.swift.com/our-solutions/compliance-and-shared-se... [2] https://www.citibank.pl/poland/corporate/polish/files/list_o...

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

#486

Post by willis936 »

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…

I'm interested in a risk assessment and hardware/software standard for acceptable error rate. How much redundancy is in use and at what layers?

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

#487

Post by bally0241 »

remram wrote: post #431
bally0241 wrote: post #278

Earlier quoted context omitted.

Sure, I'd agree commodity money is preferable (and certainly trustless in p2p transactions), and in many ways better than blockchain. I just don't see how to map that paradigm onto a world where people who have never met each other regularly transact across continents without introducing some trusted 3rd party. And the moment you add that 3rd party you end up right back where we are now.

How do you transact across continents without a trusted 3rd party, with blockchains? The only transactions you can do trust-less are transactions that happen completely on-chain, i.e. exchanging some cryptocurrency for other cryptocurrency or similar tokens. As soon as you want to exchange currency for good or services, that trusted 3rd party becomes necessary in the exact same way, no matter how "smart" your blockch…

By trust-less I am referring to a trusted 3rd party (e.g bank or escrow service) needed to mediate the transaction between the two parties. Not necessarily a lack of trust between the two parties themselves (obviously it would be foolish to pay someone you didn't trust at all in an irreversible way, but I can order something from Amazon any day with an implicit guarantee I will receive it or a refund, despite not knowing anyone there personally). An if you are referring to the shipping company that is going to move the goods, that would be a separate p2p transaction (and probably insured) between the seller/buyer and the delivery company.

Everyone who transacts in a fiat currency digitally has a defacto third (or more) party in the bank that mediates the transaction, and even non-digital cash transactions inherently include the central issuing bank (who you must trust not to debase the currency...just ask a Turkish citizen how that's going).

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

#488

Post by lisper »

landemva wrote: post #427
lisper wrote: post #209

Earlier quoted context omitted.

> 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 physic…

' we have the option of controlling it to produce better outcomes ' Following that logic, every country can simply print fiat money until everyone is rich.

It's true that every country can print as much fiat money as they want. It is obviously not true that this will make everyone rich because money is not wealth. Money is just an accounting system. It is useful to have a money supply that tracks actual wealth because it is useful to have stable prices. It makes planning easier. Fiat money is useful because it allows inflation/defaltion to be controlled by policy rather than the whims of fate. But it's still up to us to choose the right policy.

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

#489

Post by caylus »

nonfamous wrote: post #478
caylus wrote: post #339

Earlier quoted context omitted.

> when you borrow $500,000 from the bank, the bank’s funds don’t go down by $500,000 While technically true, this is a bit misleading, because if you actually /do/ anything with the $500,000, that does in fact cause the bank's funds (i.e. reserves) to go down. If you withdraw it in cash, then the bank will have to give you some of the Federal Reserve Notes it has in its vault, and when they request more from the Fede…

>> If you withdraw it in cash, then the bank will have to give you some of the Federal Reserve Notes it has in its vault And while that is indeed technically true, it only applies to money withdrawn as banknotes. Given that most of the economy is electronic transactions, that loan is to all extents and purposes real money created by the bank out of thin air (modulo capital requirements to back debt).

I address electronic transfers in the next paragraph. Even if initially transferred only within the bank, it is likely to eventually be transferred to another bank, which requires the bank to transfer corresponding reserves to that other bank.

Only the Federal Reserve can create truly unlimited amounts of money without the risk that customers might request transfers that exhaust their reserves.

Complying with reserve requirements imposed by the Federal Reserve on banks help to mitigate this risk, but they are not the true restriction. Even if the reserve requirement was zero, banks would need to keep some reserves or they would be completely unable to fulfil requests to transfer funds to other banks. And even if a bank exceeded the reserve requirement, for example by keeping 50% reserves rather than 10%, they would be insolvent if customers requested 51% of balances transferred out and were unable to cover it with loans from other banks.

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

#490

Post by remram »

bally0241 wrote: post #487
remram wrote: post #431

Earlier quoted context omitted.

How do you transact across continents without a trusted 3rd party, with blockchains? The only transactions you can do trust-less are transactions that happen completely on-chain, i.e. exchanging some cryptocurrency for other cryptocurrency or similar tokens. As soon as you want to exchange currency for good or services, that trusted 3rd party becomes necessary in the exact same way, no matter how "smart" your blockch…

By trust-less I am referring to a trusted 3rd party (e.g bank or escrow service) needed to mediate the transaction between the two parties. Not necessarily a lack of trust between the two parties themselves (obviously it would be foolish to pay someone you didn't trust at all in an irreversible way, but I can order something from Amazon any day with an implicit guarantee I will receive it or a refund, despite not kno…

So a transaction using cryptocurrency has third parties, who do just the same thing and require trust, but which you don't want to call "defacto" because...?
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