1 00:00:04,400 --> 00:00:07,800 Speaker 1: Welcome to tex Stuff, a production from I Heart Radio. 2 00:00:12,200 --> 00:00:15,080 Speaker 1: Hey there, and welcome to tech Stuff. I'm your host, 3 00:00:15,200 --> 00:00:18,800 Speaker 1: Jonathan Strickland. I'm an executive producer with I Heart Radio 4 00:00:18,880 --> 00:00:21,920 Speaker 1: and how the tech are you. First of all, if 5 00:00:21,920 --> 00:00:24,400 Speaker 1: I sound a little different in this episode, part of 6 00:00:24,440 --> 00:00:28,040 Speaker 1: that is because I came into the office because I 7 00:00:28,080 --> 00:00:32,000 Speaker 1: have an interview I'll be doing for a future episode 8 00:00:32,000 --> 00:00:34,599 Speaker 1: of tech Stuff later today, and I wanted to have 9 00:00:34,920 --> 00:00:38,960 Speaker 1: the best possible connection I could for that. And secondly, 10 00:00:39,159 --> 00:00:43,760 Speaker 1: I'm using a totally different microphone, So apologies to all 11 00:00:43,800 --> 00:00:46,680 Speaker 1: of you out there. Just bear with me as I 12 00:00:47,720 --> 00:00:49,600 Speaker 1: as I switched things up, but we'll be back to 13 00:00:49,680 --> 00:00:54,040 Speaker 1: normal before you know it. However, let's get to today's show. 14 00:00:54,560 --> 00:00:59,120 Speaker 1: I got a request on Twitter to cover Swift, particularly 15 00:00:59,280 --> 00:01:02,639 Speaker 1: as it partend pans to the Russian invasion of Ukraine. 16 00:01:03,120 --> 00:01:06,320 Speaker 1: So today we're going to learn what swift is and 17 00:01:06,400 --> 00:01:10,959 Speaker 1: what a ban on Swift in Russia actually means. And um, 18 00:01:11,000 --> 00:01:13,880 Speaker 1: I should credit the Twitter user, but they actually use 19 00:01:13,920 --> 00:01:16,760 Speaker 1: a handle that's a mixture of letters and numbers, so 20 00:01:16,959 --> 00:01:21,760 Speaker 1: I'm not positive on how they prefer that handled to 21 00:01:21,840 --> 00:01:24,480 Speaker 1: be pronounced, but I'll give it a go and say 22 00:01:24,520 --> 00:01:27,640 Speaker 1: it's Yazio. Now let's get to the meat of it. 23 00:01:28,280 --> 00:01:31,720 Speaker 1: And first, uh, there's needs to be some clarification because 24 00:01:31,720 --> 00:01:35,480 Speaker 1: there's actually different swifts in the tech world. For example, 25 00:01:35,920 --> 00:01:39,760 Speaker 1: there is the SWIFT programming language, which was developed by 26 00:01:39,880 --> 00:01:44,360 Speaker 1: Chris Latiner uh in for the Apple family of computer systems. 27 00:01:44,560 --> 00:01:47,680 Speaker 1: But that's not what we're talking about here. Uh No, 28 00:01:47,880 --> 00:01:51,200 Speaker 1: Our SWIFT is an acronym and it stands for the 29 00:01:51,280 --> 00:01:59,120 Speaker 1: Society for Worldwide inter Bank Financial Telecommunication. So when you 30 00:01:59,160 --> 00:02:03,400 Speaker 1: boil it all down, SWIFT refers to a communication system 31 00:02:03,440 --> 00:02:07,760 Speaker 1: that allows banks and other financial institutions to handle stuff 32 00:02:07,800 --> 00:02:13,560 Speaker 1: like transfers between those institutions and often that this can 33 00:02:13,600 --> 00:02:19,240 Speaker 1: include spanning the borders of countries, so international transfers. And 34 00:02:19,320 --> 00:02:22,360 Speaker 1: this is really all about moving money around. And typically 35 00:02:22,400 --> 00:02:26,760 Speaker 1: we're talking about very large sums of money, oodles of cash, 36 00:02:26,960 --> 00:02:30,760 Speaker 1: if you will. So how do you facilitate the transfer 37 00:02:30,919 --> 00:02:34,840 Speaker 1: of money? As companies and customers make or accept payments, 38 00:02:35,200 --> 00:02:39,480 Speaker 1: the money has to travel to the appropriate destination. Now 39 00:02:40,560 --> 00:02:44,040 Speaker 1: we're not usually actually talking about physical cash, like moving 40 00:02:44,680 --> 00:02:50,080 Speaker 1: physical money around. Uh, the physical stuff like paper notes, coins, 41 00:02:50,520 --> 00:02:53,639 Speaker 1: you know, travelers, checks, all that kind of thing. Those 42 00:02:53,639 --> 00:02:57,320 Speaker 1: are just the representation of the concept of money. Actually, 43 00:02:57,360 --> 00:03:00,280 Speaker 1: if you go down that road long enough, you risk 44 00:03:00,360 --> 00:03:03,200 Speaker 1: the possibility that you conclude that all money is just 45 00:03:03,320 --> 00:03:05,720 Speaker 1: a big game, and that if we stop believing in it, 46 00:03:05,720 --> 00:03:09,639 Speaker 1: it will go away. So head away from the light, 47 00:03:09,760 --> 00:03:14,799 Speaker 1: Carol Ann. It will do you no good. Anyway. This 48 00:03:14,880 --> 00:03:19,040 Speaker 1: gets way more complicated than just moving cash around. You know, 49 00:03:19,080 --> 00:03:22,960 Speaker 1: it's really easy to understand how cash moves because you've 50 00:03:22,960 --> 00:03:26,239 Speaker 1: got one party the hands over cash to another party 51 00:03:26,320 --> 00:03:30,640 Speaker 1: in return for goods or services. But the concept of 52 00:03:30,760 --> 00:03:34,640 Speaker 1: money that's trickier. However, it's also important to get a 53 00:03:34,720 --> 00:03:38,440 Speaker 1: handle on this in order to understand what's with role 54 00:03:38,560 --> 00:03:41,720 Speaker 1: is beyond just it's a way for financial institutions to 55 00:03:41,800 --> 00:03:44,720 Speaker 1: communicate with each other. I mean, technically I could just 56 00:03:44,760 --> 00:03:47,560 Speaker 1: say that and that would be it, but I don't 57 00:03:47,560 --> 00:03:52,080 Speaker 1: feel like that gives you an understanding or an appreciation 58 00:03:52,120 --> 00:03:56,280 Speaker 1: of what swift is and what it does. So first, 59 00:03:56,320 --> 00:04:00,840 Speaker 1: let's talk about what money is in bank account oounts. So, 60 00:04:02,080 --> 00:04:05,080 Speaker 1: when you, as a bank customer, make a deposit to 61 00:04:05,120 --> 00:04:08,680 Speaker 1: your personal bank account, what you're actually doing is creating 62 00:04:08,680 --> 00:04:13,120 Speaker 1: a liability for the bank. And that's because the you're 63 00:04:13,160 --> 00:04:17,560 Speaker 1: not literally handing over notes, like to a bank. You know, 64 00:04:17,600 --> 00:04:21,160 Speaker 1: if you're making a wireless transfer, you're not handing cash 65 00:04:21,200 --> 00:04:23,360 Speaker 1: to a bank that then turns around and puts it 66 00:04:23,400 --> 00:04:26,360 Speaker 1: in a big vault that just has all the cash 67 00:04:26,400 --> 00:04:28,799 Speaker 1: for all the accounts in it. That's not what's happening. 68 00:04:29,400 --> 00:04:31,919 Speaker 1: So they don't literally have a room full of cash 69 00:04:31,960 --> 00:04:34,359 Speaker 1: and they just go in and scoop out some of 70 00:04:34,400 --> 00:04:37,400 Speaker 1: it to represent your bank account. So what you're doing 71 00:04:37,520 --> 00:04:41,440 Speaker 1: in a sense is you are loaning money to the bank, 72 00:04:41,839 --> 00:04:44,279 Speaker 1: and the bank can then use that money to issue 73 00:04:44,320 --> 00:04:47,680 Speaker 1: stuff like loans to other people, loans with interest, then 74 00:04:47,720 --> 00:04:51,800 Speaker 1: in turn generate revenue for the bank. So you make 75 00:04:51,800 --> 00:04:55,599 Speaker 1: a deposit and technically the bank owes you that amount 76 00:04:55,680 --> 00:04:59,120 Speaker 1: of money, and it has to pay out that money 77 00:04:59,200 --> 00:05:02,520 Speaker 1: whenever you want it, either because you're making a payment 78 00:05:02,560 --> 00:05:05,920 Speaker 1: to someone else or you just want to withdraw your cash. 79 00:05:06,200 --> 00:05:09,360 Speaker 1: On the flip side, if you withdraw more money than 80 00:05:09,560 --> 00:05:12,040 Speaker 1: you actually have in your account, or you know, you 81 00:05:12,120 --> 00:05:14,279 Speaker 1: spend more than you have, maybe you write a check 82 00:05:14,640 --> 00:05:16,760 Speaker 1: for more money than is in your bank account as 83 00:05:16,839 --> 00:05:21,200 Speaker 1: it were, then you become overdrawn and now you owe 84 00:05:21,240 --> 00:05:25,800 Speaker 1: the bank that extra amount the amount that you overspent 85 00:05:25,920 --> 00:05:29,479 Speaker 1: or overdrew, and of course there's usually a fee thrown 86 00:05:29,520 --> 00:05:32,880 Speaker 1: on there as well, and that amount becomes an asset 87 00:05:33,160 --> 00:05:37,120 Speaker 1: to the bank. So customer deposits are bank liabilities, and 88 00:05:37,200 --> 00:05:41,400 Speaker 1: overdrawn accounts or loan payments those are assets. If two 89 00:05:41,440 --> 00:05:46,160 Speaker 1: parties are using the same bank, any money transfers can 90 00:05:46,200 --> 00:05:49,920 Speaker 1: be made pretty darned simply. So let's say that I 91 00:05:50,000 --> 00:05:53,320 Speaker 1: want to pay you ten dollars, and I cannot be 92 00:05:53,400 --> 00:05:56,919 Speaker 1: more clear, I am not paying all of you ten dollars. 93 00:05:56,960 --> 00:06:01,040 Speaker 1: You would bankrupt me. But hypothetically I want to pay 94 00:06:01,080 --> 00:06:03,120 Speaker 1: you ten dollars, and it just so happens that you 95 00:06:03,200 --> 00:06:07,320 Speaker 1: and I use the same bank. So I tell my bank, hey, 96 00:06:07,680 --> 00:06:10,440 Speaker 1: I want to transfer ten of my dollars what are 97 00:06:10,480 --> 00:06:14,280 Speaker 1: in my account to my friends account, so that those 98 00:06:14,320 --> 00:06:18,320 Speaker 1: dollars that were mine now become their dollars. And the 99 00:06:18,320 --> 00:06:21,240 Speaker 1: bank first verifies that I actually have ten dollars in 100 00:06:21,320 --> 00:06:26,320 Speaker 1: my account that I can transfer, and that you definitely 101 00:06:26,480 --> 00:06:28,960 Speaker 1: have an account with that same bank, so that there's 102 00:06:28,960 --> 00:06:31,559 Speaker 1: a place to transfer it to, and then the bank 103 00:06:31,640 --> 00:06:34,880 Speaker 1: handles the transfer and the books are balanced, and all 104 00:06:34,960 --> 00:06:38,440 Speaker 1: that is really easy because it's all in house. But 105 00:06:38,560 --> 00:06:42,520 Speaker 1: what happens if you and I use different banks, Like 106 00:06:42,600 --> 00:06:45,200 Speaker 1: I have one bank and you use a different bank. Well, 107 00:06:45,240 --> 00:06:48,279 Speaker 1: then the money has to be moved around. And when 108 00:06:48,320 --> 00:06:52,240 Speaker 1: banks move money around, they are not shipping cargo containers 109 00:06:52,240 --> 00:06:54,960 Speaker 1: filled with cash. If you really take a step back, 110 00:06:55,000 --> 00:06:57,119 Speaker 1: it just looks like banks are just kind of moving 111 00:06:57,200 --> 00:07:00,279 Speaker 1: numbers around. Like the account for what's do when the 112 00:07:00,320 --> 00:07:03,160 Speaker 1: paying that number goes down by whatever the amount was 113 00:07:03,240 --> 00:07:05,800 Speaker 1: that was paid, and for the account what's receiving the 114 00:07:05,839 --> 00:07:09,200 Speaker 1: paying that number goes up by that same amount. I 115 00:07:09,240 --> 00:07:11,480 Speaker 1: am skipping over some stuff like I'm skipping the bit 116 00:07:11,560 --> 00:07:15,080 Speaker 1: where during transfers you typically have parties that are charging 117 00:07:15,120 --> 00:07:18,240 Speaker 1: for the transfer service, so it's never as simple as 118 00:07:18,240 --> 00:07:21,360 Speaker 1: the same amount going in as coming out, which gets 119 00:07:21,400 --> 00:07:24,360 Speaker 1: further complicated when we talk about international transfers because that 120 00:07:24,400 --> 00:07:28,040 Speaker 1: also includes things like currency conversions as well as other fees. 121 00:07:28,480 --> 00:07:34,120 Speaker 1: So on a simplified level, if I wire you ten bucks, 122 00:07:35,080 --> 00:07:38,040 Speaker 1: my bank account goes down by ten bucks and yours 123 00:07:38,200 --> 00:07:40,640 Speaker 1: goes up by ten bucks, or you know, the equivalent 124 00:07:40,720 --> 00:07:46,320 Speaker 1: in whatever your currency is minus whatever fees were incurred 125 00:07:46,360 --> 00:07:49,520 Speaker 1: along the way. But there is a lot more going 126 00:07:49,560 --> 00:07:52,200 Speaker 1: on there because there has to be I mean, how 127 00:07:52,240 --> 00:07:56,280 Speaker 1: does the actual money shift over from one institution to another. 128 00:07:56,920 --> 00:07:59,360 Speaker 1: If we're using two different banks, how does the ten 129 00:07:59,480 --> 00:08:02,280 Speaker 1: bucks and amount I have with my bank actually changed 130 00:08:02,320 --> 00:08:05,520 Speaker 1: to an amount that you have with your bank. Well, 131 00:08:05,560 --> 00:08:09,440 Speaker 1: if our two banks have reciprocal accounts, which is also 132 00:08:09,560 --> 00:08:12,840 Speaker 1: called correspondent accounts, it's I think it's more common to 133 00:08:12,840 --> 00:08:16,200 Speaker 1: hear correspondent accounts in Europe and reciprocal accounts in the 134 00:08:16,240 --> 00:08:19,760 Speaker 1: United States. Anyway, That means they just settle the actual 135 00:08:19,760 --> 00:08:23,120 Speaker 1: transfer on the back end. Usually the person that gets 136 00:08:23,400 --> 00:08:26,360 Speaker 1: the money transferred to them has access to the funds 137 00:08:26,400 --> 00:08:29,560 Speaker 1: pretty much right away, but the formal settlement might take 138 00:08:29,600 --> 00:08:32,280 Speaker 1: a little bit longer between the two banks. This also 139 00:08:32,360 --> 00:08:35,480 Speaker 1: means that if something were to go terribly wrong, you 140 00:08:35,559 --> 00:08:38,880 Speaker 1: might find yourself ten bucks overdrawn if you grab the 141 00:08:38,880 --> 00:08:41,320 Speaker 1: cash right away and something happened on the back end. 142 00:08:41,360 --> 00:08:44,280 Speaker 1: Because there is risk here. If one of the two 143 00:08:44,280 --> 00:08:48,080 Speaker 1: banks is unstable and goes under then any transfer represents 144 00:08:48,080 --> 00:08:52,319 Speaker 1: a potential loss. But assuming everything's okay, here's how it works. 145 00:08:52,360 --> 00:08:59,200 Speaker 1: So reciprocal accounts or uh, you know, the correspondent accounts, 146 00:08:59,280 --> 00:09:02,400 Speaker 1: these mean that each of the banks actually has a 147 00:09:02,400 --> 00:09:06,400 Speaker 1: bank account with the other bank, So We'll say. Let's 148 00:09:06,600 --> 00:09:09,360 Speaker 1: use an example where you have Bank A and Bank B. 149 00:09:09,720 --> 00:09:13,520 Speaker 1: I use Bank A, you use Bank B. And it 150 00:09:13,559 --> 00:09:17,240 Speaker 1: turns out that Bank A has a reciprocal account of 151 00:09:17,240 --> 00:09:20,640 Speaker 1: correspondent account with bank B, and bank B has a 152 00:09:20,679 --> 00:09:23,760 Speaker 1: similar account with Bank A. Now I'm gonna send you 153 00:09:23,840 --> 00:09:27,520 Speaker 1: ten bucks, and I tell Bank A to send ten 154 00:09:27,559 --> 00:09:31,000 Speaker 1: dollars to your account in Bank B. Bank A reduces 155 00:09:31,040 --> 00:09:34,040 Speaker 1: the amount in my account by ten dollars and then 156 00:09:34,160 --> 00:09:38,280 Speaker 1: adds ten dollars to its own bank account that is 157 00:09:38,320 --> 00:09:42,640 Speaker 1: with Bank B, so essentially is depositing ten dollars into 158 00:09:42,679 --> 00:09:46,280 Speaker 1: its account in Bank B. Then Bank A tells Bank B, hey, yo, 159 00:09:46,400 --> 00:09:49,120 Speaker 1: I just sent you a tenor could you drop that 160 00:09:49,160 --> 00:09:54,280 Speaker 1: into the bank account for insert your name here. Bank B, 161 00:09:54,920 --> 00:09:57,360 Speaker 1: after verifying the Bank A's account with them had in 162 00:09:57,440 --> 00:10:01,079 Speaker 1: fact increased by ten dollars with then add ten dollars 163 00:10:01,080 --> 00:10:05,040 Speaker 1: into your account. But here's another twist. It's not like 164 00:10:05,200 --> 00:10:09,680 Speaker 1: every bank has an account with every other bank, which 165 00:10:09,720 --> 00:10:13,319 Speaker 1: means sometimes we need another party in here. We need 166 00:10:13,360 --> 00:10:16,800 Speaker 1: a third party bank that maintains lots of accounts with 167 00:10:16,920 --> 00:10:20,640 Speaker 1: other banks, uh, sort of a banks bank, if you will. 168 00:10:21,000 --> 00:10:24,079 Speaker 1: So here in the United States, the Federal Reserve serves 169 00:10:24,120 --> 00:10:27,720 Speaker 1: that function for tons of banks, hundreds of them. So 170 00:10:27,920 --> 00:10:30,880 Speaker 1: going back to our example, let's say Bank A and 171 00:10:30,880 --> 00:10:34,360 Speaker 1: Bank B do not have reciprocal or correspondent accounts with 172 00:10:34,400 --> 00:10:38,280 Speaker 1: each other, but they do each have accounts with the 173 00:10:38,320 --> 00:10:42,480 Speaker 1: Federal Reserve. Well, now, when I tell my bank to 174 00:10:42,679 --> 00:10:46,600 Speaker 1: wire you ten dollars, that communication must go through the 175 00:10:46,600 --> 00:10:50,160 Speaker 1: Federal Reserve, where Bank A puts the money into its 176 00:10:50,160 --> 00:10:52,679 Speaker 1: account with the FED. And the FED then, as kind 177 00:10:52,679 --> 00:10:54,839 Speaker 1: of like our very first example, where you have two 178 00:10:54,880 --> 00:10:58,200 Speaker 1: people using the same bank, it balances the books internally 179 00:10:58,559 --> 00:11:02,280 Speaker 1: and moves the money from Banquet's account to Bank b's 180 00:11:02,320 --> 00:11:05,960 Speaker 1: account that is also with the FED. And then Bank 181 00:11:06,040 --> 00:11:09,120 Speaker 1: A tells Bank B, Hey, yo, check your account with 182 00:11:09,200 --> 00:11:11,440 Speaker 1: the FED. There's a sweet tent spot in there that 183 00:11:11,520 --> 00:11:14,520 Speaker 1: I need you to PLoP into the account of insert 184 00:11:14,600 --> 00:11:21,240 Speaker 1: your name here, and voila money transfer. Now, these transfers 185 00:11:21,480 --> 00:11:24,280 Speaker 1: often happen, you know, they happen over clearance systems that 186 00:11:24,400 --> 00:11:29,160 Speaker 1: clear those those payments, they verify and validate them. Here 187 00:11:29,200 --> 00:11:32,520 Speaker 1: in the US, the big one is FED wire. There 188 00:11:32,520 --> 00:11:35,560 Speaker 1: are other systems for large money transfers in the United States, 189 00:11:35,880 --> 00:11:37,920 Speaker 1: but there's no real need to dive into all of 190 00:11:37,960 --> 00:11:40,559 Speaker 1: those just yet. We will touch on some of them 191 00:11:40,600 --> 00:11:44,160 Speaker 1: a little bit later. And of course this can get 192 00:11:44,200 --> 00:11:47,200 Speaker 1: more and more complicated. You start getting into a six 193 00:11:47,200 --> 00:11:49,960 Speaker 1: degrees of separation kind of situation. You might actually need 194 00:11:50,040 --> 00:11:53,719 Speaker 1: a fourth bank in the mix to facilitate a transfer 195 00:11:54,200 --> 00:11:57,240 Speaker 1: right because there might not be a single common bank 196 00:11:57,880 --> 00:12:02,680 Speaker 1: that links the senders bank account to the recipient's bank account. 197 00:12:03,360 --> 00:12:06,160 Speaker 1: This becomes increasingly common when you're talking about banks that 198 00:12:06,200 --> 00:12:09,120 Speaker 1: are in different countries. The two endpoints might not have 199 00:12:09,480 --> 00:12:13,240 Speaker 1: that single third party bank in common, so the transfer 200 00:12:13,400 --> 00:12:16,120 Speaker 1: kind of has to go through hop scotch through various 201 00:12:16,200 --> 00:12:19,760 Speaker 1: connections in order for everything to be settled. Uh. Typically speaking, 202 00:12:19,800 --> 00:12:22,200 Speaker 1: the more connections that has to go through, the more 203 00:12:22,320 --> 00:12:25,760 Speaker 1: fees are incurred, and the less money is going to 204 00:12:25,840 --> 00:12:29,320 Speaker 1: come out the other end when it finally gets there. Now, 205 00:12:30,280 --> 00:12:33,440 Speaker 1: all I'm doing here is describing some very high level 206 00:12:33,559 --> 00:12:36,120 Speaker 1: concepts when it comes to moving money around. There's a 207 00:12:36,160 --> 00:12:39,199 Speaker 1: lot more that goes into all of this, with special 208 00:12:39,240 --> 00:12:42,560 Speaker 1: identify irs for the accounts and banks that are all 209 00:12:42,800 --> 00:12:46,680 Speaker 1: necessary so that the money from the correct accounts ends 210 00:12:46,760 --> 00:12:50,960 Speaker 1: up at the correct destinations. So without those designations, without 211 00:12:50,960 --> 00:12:54,320 Speaker 1: those guarantees. We would not have confidence in our financial 212 00:12:54,320 --> 00:12:57,439 Speaker 1: systems because we would never be sure that the money 213 00:12:57,480 --> 00:13:00,840 Speaker 1: we were sending to someone was actually going to right person. 214 00:13:01,400 --> 00:13:06,280 Speaker 1: And when people lose confidence in financial systems, the systems collapse. 215 00:13:06,640 --> 00:13:11,920 Speaker 1: So the whole house of cards depends upon people having 216 00:13:11,920 --> 00:13:15,520 Speaker 1: this confidence in them. I have a lot more to 217 00:13:15,600 --> 00:13:18,199 Speaker 1: say about all of this, but before we get into 218 00:13:18,280 --> 00:13:29,360 Speaker 1: more of it, let's take a quick break. Okay, we're back. 219 00:13:29,679 --> 00:13:34,560 Speaker 1: So in order to make money transfers work, particularly between 220 00:13:34,640 --> 00:13:39,600 Speaker 1: banks that are in different countries, we have to establish protocols, 221 00:13:40,160 --> 00:13:43,600 Speaker 1: that is, the rules that we use by which money 222 00:13:43,640 --> 00:13:47,400 Speaker 1: can move around. We also have to establish the actual 223 00:13:47,520 --> 00:13:53,400 Speaker 1: communication systems the infrastructure, so that will facilitate the movement 224 00:13:53,640 --> 00:13:56,760 Speaker 1: of money at a speed that is useful. Uh. If 225 00:13:56,800 --> 00:13:59,760 Speaker 1: it took days or weeks or months for customers to 226 00:13:59,800 --> 00:14:03,719 Speaker 1: have a transfer go through, whether we're talking individuals or 227 00:14:03,720 --> 00:14:08,360 Speaker 1: companies or countries, commerce would slow way down and that 228 00:14:08,360 --> 00:14:12,200 Speaker 1: would not be acceptable. And um A big part of 229 00:14:12,200 --> 00:14:16,840 Speaker 1: this is the actual messaging system that financial institutions will 230 00:14:16,960 --> 00:14:19,880 Speaker 1: use to notify one another of payments. So in the 231 00:14:19,880 --> 00:14:24,200 Speaker 1: old days, you could do this over telegraph wires. In fact, 232 00:14:24,200 --> 00:14:26,880 Speaker 1: that's where we get the term wire transfers because in 233 00:14:26,920 --> 00:14:30,680 Speaker 1: the old days, a customer could go to a telegraph office, 234 00:14:31,160 --> 00:14:34,520 Speaker 1: they could pay an amount to that office and say, 235 00:14:34,600 --> 00:14:38,120 Speaker 1: I want to wire this money to my cousin who's 236 00:14:38,160 --> 00:14:42,240 Speaker 1: in across the country in California, and the telegraph operator 237 00:14:42,280 --> 00:14:45,560 Speaker 1: would send a message to the appropriate destination, and then 238 00:14:45,600 --> 00:14:48,480 Speaker 1: your cousin in California would go to their local telegraph 239 00:14:48,600 --> 00:14:52,600 Speaker 1: office and once verified, that office would pay out the 240 00:14:52,680 --> 00:14:56,000 Speaker 1: amount that you were wiring over, minus whatever fees you 241 00:14:56,040 --> 00:14:59,160 Speaker 1: had to pay in order to do this. Now, this 242 00:14:59,280 --> 00:15:02,480 Speaker 1: evolves slight lee over the years into more and more 243 00:15:02,520 --> 00:15:07,280 Speaker 1: complex systems such as tell x Telex essentially involved using 244 00:15:07,360 --> 00:15:12,600 Speaker 1: teleprinters to communicate across phone lines to send messages to destinations. 245 00:15:12,640 --> 00:15:15,400 Speaker 1: So you could actually, you know, type out a message 246 00:15:15,400 --> 00:15:17,720 Speaker 1: and it would send it over to telephone lines to 247 00:15:17,800 --> 00:15:20,840 Speaker 1: a printer that would print out that message. And banks 248 00:15:20,840 --> 00:15:24,240 Speaker 1: for using this in order to do big money transfers. 249 00:15:24,280 --> 00:15:28,520 Speaker 1: But obviously, as the world became more interconnected and more complicated, 250 00:15:28,680 --> 00:15:32,120 Speaker 1: and more and more businesses were expanding beyond the borders 251 00:15:32,200 --> 00:15:36,240 Speaker 1: of their native countries, we needed a more sophisticated communication 252 00:15:36,320 --> 00:15:40,160 Speaker 1: system to handle all that and it really became necessary 253 00:15:40,560 --> 00:15:44,400 Speaker 1: as global banking grew and evolved. In addition, there was 254 00:15:44,520 --> 00:15:48,800 Speaker 1: tensions within the financial industry there always are, uh. There 255 00:15:48,800 --> 00:15:51,240 Speaker 1: were banks such as City Bank, based out of New 256 00:15:51,320 --> 00:15:55,960 Speaker 1: York in the United States that created early proprietary messaging standards, 257 00:15:56,000 --> 00:16:00,000 Speaker 1: but that proprietary bit meant that other banks really weren't 258 00:16:00,080 --> 00:16:03,040 Speaker 1: too keen to have to adopt a standard that was 259 00:16:03,080 --> 00:16:08,200 Speaker 1: created and potentially controlled by a single entity like City Bank. 260 00:16:08,840 --> 00:16:10,920 Speaker 1: It would mean that if you know, City Bank was 261 00:16:10,960 --> 00:16:15,080 Speaker 1: completely in charge of making changes and updates, they wouldn't 262 00:16:15,080 --> 00:16:18,200 Speaker 1: really have a spot at the table to make suggestions, 263 00:16:18,320 --> 00:16:20,560 Speaker 1: it would And so you know, no one wants to 264 00:16:20,600 --> 00:16:22,640 Speaker 1: play by somebody else's rules. They want to be the 265 00:16:22,680 --> 00:16:26,600 Speaker 1: ones to define the rules. Other methods that competed with 266 00:16:26,640 --> 00:16:29,400 Speaker 1: City banks popped up and it all became a mess 267 00:16:29,440 --> 00:16:34,640 Speaker 1: because one thing you really need in finance is interoperability, right. 268 00:16:34,760 --> 00:16:37,600 Speaker 1: You want everyone to be playing by the same rules, 269 00:16:38,320 --> 00:16:41,400 Speaker 1: Otherwise you run into these pain points where you have 270 00:16:41,520 --> 00:16:44,120 Speaker 1: to switch from one rule set to another just in 271 00:16:44,200 --> 00:16:46,400 Speaker 1: order to get the money to move from point A 272 00:16:46,480 --> 00:16:49,040 Speaker 1: to point B. So there was a very real danger 273 00:16:49,240 --> 00:16:53,320 Speaker 1: that different proprietary systems were gonna make international transfers more complicated, 274 00:16:53,720 --> 00:16:58,160 Speaker 1: not easier, and really, when you boil it down, complicated 275 00:16:58,240 --> 00:17:03,160 Speaker 1: often leads to being more expensive. Nobody wants that. So 276 00:17:04,200 --> 00:17:07,440 Speaker 1: in Europe in the early nineteen seventies, nearly two d 277 00:17:07,640 --> 00:17:10,560 Speaker 1: forty banks collaborated on finding a way to make this 278 00:17:10,680 --> 00:17:15,520 Speaker 1: work and established both a communication infrastructure and a common 279 00:17:15,560 --> 00:17:20,200 Speaker 1: messaging language for the purposes of money transfers. One decision 280 00:17:20,200 --> 00:17:24,080 Speaker 1: they made was to locate the headquarters of their new organization, 281 00:17:24,280 --> 00:17:29,520 Speaker 1: which was SWIFT, in Belgium. Specifically, it's headquartered in a 282 00:17:29,600 --> 00:17:32,840 Speaker 1: suburb in Brussels, and you might wonder, well, why did 283 00:17:32,840 --> 00:17:36,080 Speaker 1: they choose that location, And it's largely because you had 284 00:17:36,080 --> 00:17:39,800 Speaker 1: two massive parties that were really playing tug of war here. 285 00:17:40,320 --> 00:17:42,560 Speaker 1: You had the Finance District of New York on one 286 00:17:42,600 --> 00:17:45,960 Speaker 1: side and the Finance District of London on the other side, 287 00:17:45,960 --> 00:17:48,600 Speaker 1: and both of them really wanted to have, you know, 288 00:17:48,880 --> 00:17:52,720 Speaker 1: more of a say in how this developed. So Brussels 289 00:17:52,760 --> 00:17:55,880 Speaker 1: was kind of considered neutral territory where the parties could 290 00:17:56,240 --> 00:18:00,480 Speaker 1: be assuaged. The No One arm of the financial industry 291 00:18:00,480 --> 00:18:03,399 Speaker 1: would set all the terms, and then the members of 292 00:18:03,440 --> 00:18:07,879 Speaker 1: SWIFT began to work to build out the protocols and 293 00:18:07,920 --> 00:18:12,280 Speaker 1: communication system that would support what they wanted. Now to 294 00:18:12,280 --> 00:18:16,480 Speaker 1: be clear, Swift's purpose is not to actually serve as 295 00:18:16,520 --> 00:18:20,639 Speaker 1: a financial institution. It is not balancing the books, it 296 00:18:20,720 --> 00:18:26,320 Speaker 1: is not clearing transactions. No actual money passes through Swift, 297 00:18:27,080 --> 00:18:29,920 Speaker 1: so that all of that, the actual clearing of transactions 298 00:18:29,920 --> 00:18:34,040 Speaker 1: that gets handled by some other service such as fed wire. 299 00:18:34,560 --> 00:18:37,760 Speaker 1: There's one that's called CHIPS, which isn't just an old 300 00:18:37,760 --> 00:18:41,000 Speaker 1: TV show about motorcycle cops. It's also an acronym for 301 00:18:41,160 --> 00:18:45,120 Speaker 1: clearing House Interbank Payment System, which is out of New York. 302 00:18:45,680 --> 00:18:48,760 Speaker 1: Fedwire and CHIPS are just two clearing systems. Fedwire being 303 00:18:48,760 --> 00:18:52,600 Speaker 1: a US federally regulated system, CHIPS being operated by a 304 00:18:52,600 --> 00:18:55,919 Speaker 1: private company called the New York clearing House Association. But 305 00:18:56,040 --> 00:18:59,600 Speaker 1: there's also other ones. There's like the Bankers Automated Clearing 306 00:18:59,600 --> 00:19:04,320 Speaker 1: System or b ACS BACKS that is a very similar 307 00:19:04,440 --> 00:19:07,880 Speaker 1: type of organization. It operates out of the United Kingdom. 308 00:19:07,960 --> 00:19:11,720 Speaker 1: These are the types of institutions that are actually moving 309 00:19:11,760 --> 00:19:16,479 Speaker 1: the money around. But what SWIFT is doing is serving 310 00:19:16,520 --> 00:19:21,680 Speaker 1: as a communications system between banks and financial institutions, so 311 00:19:21,880 --> 00:19:25,280 Speaker 1: it can carry the message that says, hey, bank A, 312 00:19:25,880 --> 00:19:29,200 Speaker 1: you need to transfer X amount of money to bank 313 00:19:29,359 --> 00:19:33,320 Speaker 1: b and Swift has to do this in an efficient, fast, 314 00:19:33,440 --> 00:19:38,040 Speaker 1: and critically a secure way. And that's actually the real 315 00:19:38,119 --> 00:19:41,159 Speaker 1: value of Swift that it allows for financial institutions to 316 00:19:41,280 --> 00:19:45,160 Speaker 1: send these messages about moving money around in a way 317 00:19:45,160 --> 00:19:48,879 Speaker 1: that is dependable and safe. Part of that security is 318 00:19:48,920 --> 00:19:52,680 Speaker 1: that Swift also doesn't really maintain financial information on an 319 00:19:52,680 --> 00:19:57,320 Speaker 1: ongoing basis. It's what is called a store and forward operation, 320 00:19:57,800 --> 00:20:00,920 Speaker 1: meaning it holds onto information really only as long as 321 00:20:00,920 --> 00:20:06,080 Speaker 1: it is necessary to complete a transaction. Swift the organization 322 00:20:06,960 --> 00:20:12,399 Speaker 1: set up a private international communications network specifically dedicated to 323 00:20:12,680 --> 00:20:16,560 Speaker 1: financial transaction messages. So if you think of the Internet 324 00:20:16,600 --> 00:20:20,760 Speaker 1: as a network of networks, Swift is a network, a 325 00:20:20,880 --> 00:20:25,879 Speaker 1: specific network for the sole purpose of financial institutions sending 326 00:20:25,920 --> 00:20:30,719 Speaker 1: these messages in order to make money move around the world. Uh. 327 00:20:30,800 --> 00:20:33,480 Speaker 1: The need for a private network was clear because the 328 00:20:33,520 --> 00:20:39,600 Speaker 1: demands of finance were increasingly growing as globalization increased as well, 329 00:20:40,040 --> 00:20:44,560 Speaker 1: and if the financial institution was just relying on leasing 330 00:20:44,640 --> 00:20:50,360 Speaker 1: out some some network infrastructure from other providers, they would 331 00:20:50,400 --> 00:20:53,280 Speaker 1: be hitting up against their limits pretty quickly on a 332 00:20:53,320 --> 00:20:55,880 Speaker 1: regular basis, and that just didn't make sense. It made 333 00:20:55,920 --> 00:20:58,679 Speaker 1: more sense for them to build out a system that 334 00:20:58,840 --> 00:21:03,600 Speaker 1: was solely dedicated for the financial industry. A year after 335 00:21:03,600 --> 00:21:07,520 Speaker 1: the organization's founding, so this is nineteen seventy four, the 336 00:21:07,640 --> 00:21:10,840 Speaker 1: members of Swift decided to contract with a company called 337 00:21:10,880 --> 00:21:14,479 Speaker 1: Burroughs Corporation based of Detroit, Michigan, here in the United States. 338 00:21:15,080 --> 00:21:18,399 Speaker 1: That company would supply the computer equipment that would handle 339 00:21:18,480 --> 00:21:22,880 Speaker 1: these electronic messages, and also the company installed the systems 340 00:21:22,920 --> 00:21:28,520 Speaker 1: around the world, so these would be the backbone, the infrastructure, 341 00:21:28,600 --> 00:21:32,800 Speaker 1: the actual hardware that carries the electronic messages across the 342 00:21:32,800 --> 00:21:36,720 Speaker 1: Swift system. And it took four years for the Swift 343 00:21:36,840 --> 00:21:41,800 Speaker 1: organization to design and and bring online the Swift system. 344 00:21:41,880 --> 00:21:45,760 Speaker 1: It officially launched in nineteen seventy seven when Prince Albert 345 00:21:45,800 --> 00:21:50,840 Speaker 1: of Belgium sent the first message over the Swift system. UM. 346 00:21:50,880 --> 00:21:54,000 Speaker 1: I'm not sure what he sent, Maybe it was where's 347 00:21:54,040 --> 00:21:57,400 Speaker 1: my money? Anyway, at launch, Swift had more than five 348 00:21:57,840 --> 00:22:01,080 Speaker 1: member banks across fifteen countries, and two years later, in 349 00:22:01,200 --> 00:22:05,720 Speaker 1: nineteen Swift was handling more than a hundred twenty thousand 350 00:22:05,800 --> 00:22:09,560 Speaker 1: transfer messages per day, and a major part of Swift 351 00:22:09,680 --> 00:22:13,120 Speaker 1: was the standardization of those messages. See back in the 352 00:22:13,119 --> 00:22:16,760 Speaker 1: tell X days when people were using teleprinters, there was 353 00:22:16,800 --> 00:22:21,160 Speaker 1: no international standard. People would use forms, and forms could 354 00:22:21,240 --> 00:22:26,960 Speaker 1: vary from institution to institution. They all covered the same stuff, 355 00:22:27,359 --> 00:22:30,400 Speaker 1: but they were laid out differently, right, so you would 356 00:22:30,400 --> 00:22:32,880 Speaker 1: have to really look over the form and say, all right, well, 357 00:22:32,920 --> 00:22:36,840 Speaker 1: now I found the account number, for example, and here's 358 00:22:36,880 --> 00:22:39,400 Speaker 1: where the amount is. All those sort of things would 359 00:22:39,440 --> 00:22:43,679 Speaker 1: be different from one institution to another, and that was 360 00:22:43,720 --> 00:22:47,520 Speaker 1: a bit of an issue. Swift standardized that. However, the 361 00:22:47,600 --> 00:22:50,199 Speaker 1: members of Swift also wanted to create a protocol for 362 00:22:50,240 --> 00:22:53,879 Speaker 1: electronic message formats that was at the same time backwards 363 00:22:53,880 --> 00:22:58,040 Speaker 1: compatible with the old telex system, because in the early 364 00:22:58,119 --> 00:23:01,919 Speaker 1: days a lot of institution were still dependent upon tell x, 365 00:23:02,040 --> 00:23:04,919 Speaker 1: so it's not like everyone switched over to Swift on 366 00:23:05,040 --> 00:23:08,040 Speaker 1: day one. It would take a while, which meant they 367 00:23:08,040 --> 00:23:10,920 Speaker 1: wanted to make sure that any messages sent over Swift 368 00:23:11,040 --> 00:23:16,760 Speaker 1: could also travel over tell X in order to minimize 369 00:23:16,800 --> 00:23:20,199 Speaker 1: the impact. Otherwise, like if you change everything overnight and 370 00:23:20,240 --> 00:23:22,760 Speaker 1: you require everyone to get on the same page, it 371 00:23:22,800 --> 00:23:26,240 Speaker 1: just takes forever for that to actually happen. So this 372 00:23:26,320 --> 00:23:29,960 Speaker 1: was a pretty important part of their decision. Tell X 373 00:23:30,080 --> 00:23:33,920 Speaker 1: designated banks using a bank Identify R code, which is 374 00:23:33,960 --> 00:23:37,439 Speaker 1: a unique code for each bank, Like you have to 375 00:23:37,440 --> 00:23:41,240 Speaker 1: have a specific individual code so that you not only 376 00:23:41,240 --> 00:23:43,520 Speaker 1: know what bank it is, but what branch, you know 377 00:23:43,560 --> 00:23:46,600 Speaker 1: what location you're talking about. So these are kind of 378 00:23:46,640 --> 00:23:51,760 Speaker 1: like fingerprints. They are unique to specific banks or financial institutions. 379 00:23:52,119 --> 00:23:54,679 Speaker 1: Swift would adopt that same approach, but they called it 380 00:23:54,760 --> 00:23:58,919 Speaker 1: the Swift code. Swift has evolved over the years and 381 00:23:58,960 --> 00:24:00,880 Speaker 1: has been at the center of various tugs of war 382 00:24:00,960 --> 00:24:05,080 Speaker 1: between different members of the organization. The current version of 383 00:24:05,160 --> 00:24:08,560 Speaker 1: Swift dates to two thousand five, at least that's when 384 00:24:08,560 --> 00:24:11,400 Speaker 1: it was completed. It actually started a little bit earlier, 385 00:24:11,640 --> 00:24:14,879 Speaker 1: but you know, they regularly go in and tweak things 386 00:24:15,080 --> 00:24:19,760 Speaker 1: and make changes to make things work more smoothly, and 387 00:24:19,840 --> 00:24:23,440 Speaker 1: to get into all the intricacies of Swift protocols would 388 00:24:23,480 --> 00:24:26,720 Speaker 1: get really dry, and I argue it would also be 389 00:24:26,760 --> 00:24:29,480 Speaker 1: really hard to follow. Like pretty quickly I would reach 390 00:24:29,520 --> 00:24:34,040 Speaker 1: a point where I know I wouldn't be completely aware 391 00:24:34,040 --> 00:24:36,959 Speaker 1: of what it was I was saying. The smart folks 392 00:24:36,960 --> 00:24:39,560 Speaker 1: out there, they might listen to me and go, well, 393 00:24:39,600 --> 00:24:41,399 Speaker 1: I know what he's trying to say, but he clearly 394 00:24:41,440 --> 00:24:44,320 Speaker 1: doesn't understand it. I'd rather just sidestep that and tell 395 00:24:44,400 --> 00:24:47,679 Speaker 1: you it gets more technical and more complicated than I 396 00:24:47,720 --> 00:24:51,159 Speaker 1: am comfortable covering. However, it is important to understand that 397 00:24:51,200 --> 00:24:54,480 Speaker 1: SWIFT has rules in place that define things like the 398 00:24:54,600 --> 00:24:59,280 Speaker 1: kinds of transactions that can happen between different parties. Um 399 00:24:59,480 --> 00:25:03,800 Speaker 1: away of identifying specific banks, including specific branches and locations, 400 00:25:04,720 --> 00:25:07,200 Speaker 1: it has ways of providing a secure means of communication 401 00:25:07,680 --> 00:25:10,640 Speaker 1: between all the members of the system and thus makes 402 00:25:10,640 --> 00:25:13,480 Speaker 1: it simpler for these big organizations to move money around 403 00:25:13,520 --> 00:25:18,880 Speaker 1: while minimizing the potential for errors. Okay, well, all that 404 00:25:19,040 --> 00:25:22,120 Speaker 1: is kind of the basics on the Swift system. When 405 00:25:22,119 --> 00:25:24,879 Speaker 1: we come back, I'll talk about what it means to 406 00:25:25,440 --> 00:25:29,440 Speaker 1: quote unquote ban Russia from Swift. But first let's take 407 00:25:29,480 --> 00:25:40,960 Speaker 1: another quick break. All right, what does it mean to 408 00:25:41,840 --> 00:25:45,520 Speaker 1: cut off a nation from Swift? First of all, it 409 00:25:45,640 --> 00:25:49,520 Speaker 1: has happened before. Russia is not the only country to 410 00:25:49,720 --> 00:25:55,240 Speaker 1: have been effectively uh blacked out in the Swift system. 411 00:25:55,440 --> 00:25:59,359 Speaker 1: That has happened previously with Iran. So what does this 412 00:25:59,440 --> 00:26:03,280 Speaker 1: actually mean. Well, by denying certain major Russian banks in 413 00:26:03,280 --> 00:26:07,520 Speaker 1: this case, and financial institutions in Russia the use of Swift, 414 00:26:08,200 --> 00:26:12,760 Speaker 1: those organizations are not able to engage in international money transfers. 415 00:26:13,240 --> 00:26:15,439 Speaker 1: At least they can't do it as easily as they 416 00:26:15,480 --> 00:26:20,080 Speaker 1: could before. They can no longer send or receive communications 417 00:26:20,160 --> 00:26:23,720 Speaker 1: over this network. And since those communications are kind of 418 00:26:23,720 --> 00:26:30,000 Speaker 1: what instigates the transfer of moneies, that really is an 419 00:26:30,160 --> 00:26:34,520 Speaker 1: enormous economical impact on not just the targeted nation, but 420 00:26:34,680 --> 00:26:39,239 Speaker 1: everyone else too. And uh yeah, that that that can 421 00:26:39,320 --> 00:26:43,639 Speaker 1: have a massive impact well beyond just the country that 422 00:26:43,640 --> 00:26:46,840 Speaker 1: gets blacked out because of that, you know, international component. 423 00:26:46,840 --> 00:26:49,960 Speaker 1: Blacking out one region has this ripple effect on others. 424 00:26:50,320 --> 00:26:52,640 Speaker 1: In fact, the United States is one of the countries 425 00:26:52,680 --> 00:26:56,320 Speaker 1: that sees international transfers to and from Russia a lot, 426 00:26:57,080 --> 00:27:00,240 Speaker 1: like when you're looking at where money is moved to 427 00:27:00,520 --> 00:27:04,159 Speaker 1: and from United States is one of the big ones 428 00:27:04,560 --> 00:27:08,760 Speaker 1: with Russia. So that means that if Russia can't engage 429 00:27:08,760 --> 00:27:12,399 Speaker 1: in these kinds of transfers anymore because it's been blacked 430 00:27:12,400 --> 00:27:15,840 Speaker 1: out through SWIFT, that has an impact on my country 431 00:27:15,880 --> 00:27:19,239 Speaker 1: as well in the United States because it also you know, 432 00:27:19,280 --> 00:27:23,240 Speaker 1: it's it's a party to those transfers. Now, the goal 433 00:27:23,640 --> 00:27:26,239 Speaker 1: of putting in this band is to squeeze Russia by 434 00:27:26,320 --> 00:27:30,120 Speaker 1: hindering its financial system. It wasn't until Russia had really 435 00:27:30,160 --> 00:27:33,800 Speaker 1: committed to invading Ukraine that we actually saw some movement 436 00:27:33,880 --> 00:27:37,080 Speaker 1: on this front. A lot of nations, including the United States, 437 00:27:37,440 --> 00:27:41,960 Speaker 1: were initially really reluctant to ban Russia from Swift And 438 00:27:42,320 --> 00:27:44,719 Speaker 1: you could say, well, maybe that's because of these ripples 439 00:27:44,760 --> 00:27:47,679 Speaker 1: I'm talking about. That's that these economic ripples that go 440 00:27:47,760 --> 00:27:50,960 Speaker 1: through the rest of the world. How it's not just 441 00:27:51,200 --> 00:27:54,840 Speaker 1: Russia that's quote unquote being punished. But I'm also sure 442 00:27:54,880 --> 00:27:57,399 Speaker 1: there is no shortage of conspiracy theories out there that 443 00:27:57,480 --> 00:28:00,600 Speaker 1: have a more sinister explanation for it, like idea that 444 00:28:01,480 --> 00:28:06,480 Speaker 1: certain parties in power have economic interests that are going 445 00:28:06,520 --> 00:28:10,119 Speaker 1: to be directly impacted by this ban, and that is 446 00:28:10,160 --> 00:28:13,840 Speaker 1: why they were reluctant to commit to it, because it 447 00:28:13,960 --> 00:28:17,880 Speaker 1: would have a direct consequence on their personal wealth. I'm 448 00:28:17,920 --> 00:28:21,360 Speaker 1: sure there are tons of those theories out there. I 449 00:28:21,400 --> 00:28:23,720 Speaker 1: don't know of any offhand, but I would be shocked 450 00:28:23,720 --> 00:28:26,840 Speaker 1: to learn that there aren't any of those out there. Um, 451 00:28:26,880 --> 00:28:29,359 Speaker 1: but yeah, that that's the stuff they don't want you 452 00:28:29,400 --> 00:28:33,480 Speaker 1: to know topics, So I'll leave it there. Ultimately, the 453 00:28:33,560 --> 00:28:38,040 Speaker 1: choice was made to ban certain Russian institutions from Swift, 454 00:28:38,080 --> 00:28:40,760 Speaker 1: So it's not like every bank in Russia is necessarily 455 00:28:40,760 --> 00:28:44,719 Speaker 1: affected by this, but the major ones certainly are. Now, 456 00:28:44,800 --> 00:28:49,280 Speaker 1: Russia does have its own internal payment system similar to Swift. 457 00:28:49,440 --> 00:28:52,520 Speaker 1: Like it does the same it fulfills the same purpose 458 00:28:52,600 --> 00:28:57,080 Speaker 1: as Swift UH. This one is called SPF S and 459 00:28:57,160 --> 00:29:01,000 Speaker 1: that has around four hundred member organization and according to 460 00:29:01,080 --> 00:29:04,800 Speaker 1: Russia's Central Bank, it handles about a fifth of all 461 00:29:04,960 --> 00:29:08,920 Speaker 1: of Russia's domestic transfers UH. And that's a good opportunity 462 00:29:08,960 --> 00:29:13,600 Speaker 1: to mention that Swift isn't just used for international money transfers. 463 00:29:13,960 --> 00:29:16,520 Speaker 1: It could be used within a nation as well in 464 00:29:16,640 --> 00:29:19,680 Speaker 1: order to move money between banks, and in fact, some 465 00:29:19,760 --> 00:29:24,320 Speaker 1: individual banks have adopted Swift standards for internal use. They're 466 00:29:24,320 --> 00:29:28,600 Speaker 1: not directly porting the Swift system to use in house, 467 00:29:29,240 --> 00:29:33,600 Speaker 1: but they typically will wrap the Swift system within whatever 468 00:29:33,640 --> 00:29:37,560 Speaker 1: their you know, own banking system is, and they rely 469 00:29:37,640 --> 00:29:39,400 Speaker 1: on that because, of course, it makes way more sense 470 00:29:39,440 --> 00:29:41,920 Speaker 1: to just use the same system as much as possible, 471 00:29:42,520 --> 00:29:47,880 Speaker 1: rather than have to deal with potentially competing systems. Now, interestingly, 472 00:29:48,640 --> 00:29:52,440 Speaker 1: Russia really invested in the creation of this spf S 473 00:29:52,440 --> 00:29:56,040 Speaker 1: system around two thousand and fourteen. And you might say, well, 474 00:29:56,720 --> 00:30:00,240 Speaker 1: what's significant about that? Why did Russia start creating its 475 00:30:00,280 --> 00:30:03,760 Speaker 1: own sort of a payment system in internal payment system 476 00:30:03,920 --> 00:30:06,920 Speaker 1: around that time. Well, two thousand fourteen was when the 477 00:30:07,000 --> 00:30:10,880 Speaker 1: United Kingdom was trying to convince Swift to cut off 478 00:30:11,000 --> 00:30:15,080 Speaker 1: access to Russian banks. So why was the UK arguing 479 00:30:15,120 --> 00:30:17,760 Speaker 1: that back in two thousand fourteen, Well, that just happened 480 00:30:17,760 --> 00:30:22,240 Speaker 1: to deal with an earlier Ukrainian invasion, because, as we 481 00:30:22,320 --> 00:30:27,640 Speaker 1: have learned many times, history repeats itself. Then there's also 482 00:30:28,120 --> 00:30:32,360 Speaker 1: another system called the Cross Border inter Bank Payments System 483 00:30:32,640 --> 00:30:36,719 Speaker 1: or SIPs c i p S that originates out of China. 484 00:30:37,040 --> 00:30:40,600 Speaker 1: That system isn't nearly as widely adopted as Swift and others, 485 00:30:40,960 --> 00:30:44,560 Speaker 1: and it's also pretty young. It's a pretty recent system, 486 00:30:44,600 --> 00:30:47,480 Speaker 1: but potentially could serve as a kind of lifeline for 487 00:30:47,560 --> 00:30:51,520 Speaker 1: Russia's banking industry if this band stretches on for a 488 00:30:51,560 --> 00:30:55,680 Speaker 1: really long time. There's also been talk of Russia potentially 489 00:30:55,760 --> 00:30:59,880 Speaker 1: leaning on cryptocurrency to work around sanctions, like the idea 490 00:30:59,880 --> 00:31:03,680 Speaker 1: of moving money around by converting stuff into crypto, doing 491 00:31:03,720 --> 00:31:07,920 Speaker 1: crypto transfers and then converting that back into other currencies, 492 00:31:08,240 --> 00:31:12,200 Speaker 1: or just keeping it in crypto and using transfers that way. 493 00:31:12,640 --> 00:31:17,480 Speaker 1: That is theoretically possible, but it's largely impractical. And the 494 00:31:17,520 --> 00:31:20,680 Speaker 1: main reason I say that isn't like to slag off crypto. 495 00:31:20,760 --> 00:31:24,120 Speaker 1: Y'all know I'm not big on crypto, But this doesn't 496 00:31:24,160 --> 00:31:25,600 Speaker 1: have to do with that. No, it has to do 497 00:31:25,640 --> 00:31:30,360 Speaker 1: with adoption. Uh, despite what true believers might have you think, 498 00:31:30,920 --> 00:31:37,320 Speaker 1: adoption for crypto is not that widespread. And if if, 499 00:31:37,520 --> 00:31:40,640 Speaker 1: if you don't have the right parties invested in a 500 00:31:40,680 --> 00:31:45,120 Speaker 1: particular system, then you can't really transfer money around. So 501 00:31:45,440 --> 00:31:48,240 Speaker 1: it has very limited utility and it adds in a 502 00:31:48,280 --> 00:31:50,920 Speaker 1: lot of extra steps. And as I said, the more 503 00:31:51,000 --> 00:31:55,640 Speaker 1: steps you add when you're talking about money transfers correlates 504 00:31:55,880 --> 00:31:59,680 Speaker 1: with extra costs. So generally speaking, no one wants to 505 00:31:59,720 --> 00:32:03,560 Speaker 1: see significant amounts of the money they're trying to transfer 506 00:32:04,000 --> 00:32:07,920 Speaker 1: get gobbled up in various types of fees. So what 507 00:32:08,040 --> 00:32:10,920 Speaker 1: are the long term implications here? That's kind of hard 508 00:32:10,960 --> 00:32:13,760 Speaker 1: to say. It all depends really on how this Russian 509 00:32:13,840 --> 00:32:19,920 Speaker 1: Ukrainian situation pans out. Uh. The longer these sanctions are 510 00:32:20,000 --> 00:32:24,160 Speaker 1: on Russia, the harder it's going to be for oligarchs 511 00:32:24,160 --> 00:32:28,760 Speaker 1: who depend upon large transfers from outside the country getting 512 00:32:28,760 --> 00:32:31,680 Speaker 1: at that money. Um, we have heard that a lot 513 00:32:31,720 --> 00:32:35,560 Speaker 1: of Russian oligarchs are traveling all over the place. Part 514 00:32:35,560 --> 00:32:38,240 Speaker 1: of that might just be for them to access wealth 515 00:32:38,360 --> 00:32:40,920 Speaker 1: that they have stored in various locations that they otherwise 516 00:32:40,960 --> 00:32:43,840 Speaker 1: can't easily move, Like if they can't move the money 517 00:32:43,880 --> 00:32:46,520 Speaker 1: to them, they'll move to where the money is. That's 518 00:32:46,520 --> 00:32:50,840 Speaker 1: a possibility, but we'll have to see how this rolls out. Uh, 519 00:32:50,960 --> 00:32:52,640 Speaker 1: there's a good chance that this is going to have 520 00:32:52,720 --> 00:32:56,600 Speaker 1: a really negative impact on Russian citizens who are going 521 00:32:56,640 --> 00:33:00,680 Speaker 1: to find it increasingly difficult to do things like send 522 00:33:00,720 --> 00:33:05,280 Speaker 1: money internationally or purchase things from stores that are based 523 00:33:05,280 --> 00:33:10,240 Speaker 1: in other countries. Um, maybe even doing some basic banking 524 00:33:10,280 --> 00:33:13,040 Speaker 1: stuff like a lot of that's going to be hard 525 00:33:13,200 --> 00:33:16,200 Speaker 1: on people, And that's kind of a shame because it's 526 00:33:16,240 --> 00:33:21,000 Speaker 1: not really the people who are necessarily responsible for the 527 00:33:21,080 --> 00:33:25,120 Speaker 1: reason for the sanctions. Uh. Sometimes these sanctions really put 528 00:33:25,160 --> 00:33:29,800 Speaker 1: the hurt on innocence in an effort to build pressure 529 00:33:30,160 --> 00:33:35,520 Speaker 1: on political entity in order to convince them to stop 530 00:33:35,560 --> 00:33:38,920 Speaker 1: whatever it is they're doing. The message being if you 531 00:33:38,960 --> 00:33:41,360 Speaker 1: don't do that, your own people are going to rise 532 00:33:41,440 --> 00:33:45,000 Speaker 1: up against you. But that's really unfortunate because what it 533 00:33:45,040 --> 00:33:46,800 Speaker 1: really means is you have to put the squeeze on 534 00:33:46,840 --> 00:33:49,960 Speaker 1: people who don't necessarily deserve it and who can least 535 00:33:50,000 --> 00:33:54,760 Speaker 1: afford to be squeezed. So that's the downside to these 536 00:33:54,800 --> 00:33:57,720 Speaker 1: I'm not saying that economic sanctions don't work, and I'm 537 00:33:57,760 --> 00:34:00,880 Speaker 1: not saying that they're not necessary at time. I'm just 538 00:34:00,920 --> 00:34:04,640 Speaker 1: pointing out that the reality of economic sanctions often means 539 00:34:04,680 --> 00:34:07,960 Speaker 1: that you've got a lot of collateral damage that is 540 00:34:08,000 --> 00:34:12,040 Speaker 1: dealt to people who don't have a direct relationship with 541 00:34:12,160 --> 00:34:15,480 Speaker 1: the underlying issue that that necessitated the sanctions in the 542 00:34:15,520 --> 00:34:19,040 Speaker 1: first place. But that's because the world is a complicated place, 543 00:34:20,080 --> 00:34:24,120 Speaker 1: and if you're trying to convince governments to to not 544 00:34:24,320 --> 00:34:29,399 Speaker 1: take certain actions without resorting to you know, violence and war, 545 00:34:30,160 --> 00:34:34,000 Speaker 1: then you know you've got some limited options, especially if 546 00:34:34,040 --> 00:34:37,200 Speaker 1: you have a country that is led by a you know, 547 00:34:37,360 --> 00:34:41,840 Speaker 1: authoritarian and belligerent government, and there are there's no shortage 548 00:34:41,840 --> 00:34:45,560 Speaker 1: of those in the world unfortunately. But anyway, that is 549 00:34:45,600 --> 00:34:49,839 Speaker 1: the underlying story behind Swift and what it is they're 550 00:34:50,000 --> 00:34:53,160 Speaker 1: Like I said, there are lots of different systems that 551 00:34:53,200 --> 00:34:57,440 Speaker 1: connect in with Swift that actually do the movement of money, 552 00:34:57,480 --> 00:35:01,000 Speaker 1: but the Swift system itself is in valuable when it 553 00:35:01,040 --> 00:35:06,360 Speaker 1: comes to facilitating these messagings so that we can actually 554 00:35:06,400 --> 00:35:09,719 Speaker 1: have these transfers take place. Without it, we would be 555 00:35:09,760 --> 00:35:14,080 Speaker 1: reliant on outdated modes that are not nearly as efficient 556 00:35:14,400 --> 00:35:18,600 Speaker 1: or fast or safe. So I hope that's helpful. I 557 00:35:18,680 --> 00:35:21,080 Speaker 1: hope you have learned something about Swift. It is very 558 00:35:21,120 --> 00:35:26,680 Speaker 1: interesting because it is a an extremely focused niche network. 559 00:35:27,320 --> 00:35:29,040 Speaker 1: Like most of the time when I think of networks, 560 00:35:29,080 --> 00:35:31,520 Speaker 1: I think of more general purpose networks. I don't think 561 00:35:31,520 --> 00:35:35,520 Speaker 1: about something as specific as this, so it was interesting 562 00:35:35,560 --> 00:35:37,600 Speaker 1: for me to go in and really read up on 563 00:35:37,640 --> 00:35:40,920 Speaker 1: the history and the evolution of Swift. So I appreciate 564 00:35:40,960 --> 00:35:44,359 Speaker 1: the suggestion. If you have a suggestion for a topic 565 00:35:44,360 --> 00:35:46,400 Speaker 1: I should cover in a future episode of tech Stuff, 566 00:35:46,760 --> 00:35:49,240 Speaker 1: the best way to reach out to me is on Twitter. 567 00:35:49,440 --> 00:35:52,120 Speaker 1: The handle for the show is text Stuff hs W 568 00:35:53,120 --> 00:36:01,560 Speaker 1: and I'll talk to you again really soon. Text Stuff 569 00:36:01,640 --> 00:36:04,799 Speaker 1: is an I Heart Radio production. For more podcasts from 570 00:36:04,840 --> 00:36:08,600 Speaker 1: I Heart Radio, visit the I Heart Radio app, Apple Podcasts, 571 00:36:08,719 --> 00:36:10,720 Speaker 1: or wherever you listen to your favorite shows.