Speaker 1: Welcome to tex Stuff, a production from I Heart Radio.
Speaker 1: Hey there, and welcome to tech Stuff. I'm your host,
Speaker 1: Jonathan Strickland. I'm an executive producer with I Heart Radio
Speaker 1: and how the tech are you. First of all, if
Speaker 1: I sound a little different in this episode, part of
Speaker 1: that is because I came into the office because I
Speaker 1: have an interview I'll be doing for a future episode
Speaker 1: of tech Stuff later today, and I wanted to have
Speaker 1: the best possible connection I could for that. And secondly,
Speaker 1: I'm using a totally different microphone, So apologies to all
Speaker 1: of you out there. Just bear with me as I
Speaker 1: as I switched things up, but we'll be back to
Speaker 1: normal before you know it. However, let's get to today's show.
Speaker 1: I got a request on Twitter to cover Swift, particularly
Speaker 1: as it partend pans to the Russian invasion of Ukraine.
Speaker 1: So today we're going to learn what swift is and
Speaker 1: what a ban on Swift in Russia actually means. And um,
Speaker 1: I should credit the Twitter user, but they actually use
Speaker 1: a handle that's a mixture of letters and numbers, so
Speaker 1: I'm not positive on how they prefer that handled to
Speaker 1: be pronounced, but I'll give it a go and say
Speaker 1: it's Yazio. Now let's get to the meat of it.
Speaker 1: And first, uh, there's needs to be some clarification because
Speaker 1: there's actually different swifts in the tech world. For example,
Speaker 1: there is the SWIFT programming language, which was developed by
Speaker 1: Chris Latiner uh in for the Apple family of computer systems.
Speaker 1: But that's not what we're talking about here. Uh No,
Speaker 1: Our SWIFT is an acronym and it stands for the
Speaker 1: Society for Worldwide inter Bank Financial Telecommunication. So when you
Speaker 1: boil it all down, SWIFT refers to a communication system
Speaker 1: that allows banks and other financial institutions to handle stuff
Speaker 1: like transfers between those institutions and often that this can
Speaker 1: include spanning the borders of countries, so international transfers. And
Speaker 1: this is really all about moving money around. And typically
Speaker 1: we're talking about very large sums of money, oodles of cash,
Speaker 1: if you will. So how do you facilitate the transfer
Speaker 1: of money? As companies and customers make or accept payments,
Speaker 1: the money has to travel to the appropriate destination. Now
Speaker 1: we're not usually actually talking about physical cash, like moving
Speaker 1: physical money around. Uh, the physical stuff like paper notes, coins,
Speaker 1: you know, travelers, checks, all that kind of thing. Those
Speaker 1: are just the representation of the concept of money. Actually,
Speaker 1: if you go down that road long enough, you risk
Speaker 1: the possibility that you conclude that all money is just
Speaker 1: a big game, and that if we stop believing in it,
Speaker 1: it will go away. So head away from the light,
Speaker 1: Carol Ann. It will do you no good. Anyway. This
Speaker 1: gets way more complicated than just moving cash around. You know,
Speaker 1: it's really easy to understand how cash moves because you've
Speaker 1: got one party the hands over cash to another party
Speaker 1: in return for goods or services. But the concept of
Speaker 1: money that's trickier. However, it's also important to get a
Speaker 1: handle on this in order to understand what's with role
Speaker 1: is beyond just it's a way for financial institutions to
Speaker 1: communicate with each other. I mean, technically I could just
Speaker 1: say that and that would be it, but I don't
Speaker 1: feel like that gives you an understanding or an appreciation
Speaker 1: of what swift is and what it does. So first,
Speaker 1: let's talk about what money is in bank account oounts. So,
Speaker 1: when you, as a bank customer, make a deposit to
Speaker 1: your personal bank account, what you're actually doing is creating
Speaker 1: a liability for the bank. And that's because the you're
Speaker 1: not literally handing over notes, like to a bank. You know,
Speaker 1: if you're making a wireless transfer, you're not handing cash
Speaker 1: to a bank that then turns around and puts it
Speaker 1: in a big vault that just has all the cash
Speaker 1: for all the accounts in it. That's not what's happening.
Speaker 1: So they don't literally have a room full of cash
Speaker 1: and they just go in and scoop out some of
Speaker 1: it to represent your bank account. So what you're doing
Speaker 1: in a sense is you are loaning money to the bank,
Speaker 1: and the bank can then use that money to issue
Speaker 1: stuff like loans to other people, loans with interest, then
Speaker 1: in turn generate revenue for the bank. So you make
Speaker 1: a deposit and technically the bank owes you that amount
Speaker 1: of money, and it has to pay out that money
Speaker 1: whenever you want it, either because you're making a payment
Speaker 1: to someone else or you just want to withdraw your cash.
Speaker 1: On the flip side, if you withdraw more money than
Speaker 1: you actually have in your account, or you know, you
Speaker 1: spend more than you have, maybe you write a check
Speaker 1: for more money than is in your bank account as
Speaker 1: it were, then you become overdrawn and now you owe
Speaker 1: the bank that extra amount the amount that you overspent
Speaker 1: or overdrew, and of course there's usually a fee thrown
Speaker 1: on there as well, and that amount becomes an asset
Speaker 1: to the bank. So customer deposits are bank liabilities, and
Speaker 1: overdrawn accounts or loan payments those are assets. If two
Speaker 1: parties are using the same bank, any money transfers can
Speaker 1: be made pretty darned simply. So let's say that I
Speaker 1: want to pay you ten dollars, and I cannot be
Speaker 1: more clear, I am not paying all of you ten dollars.
Speaker 1: You would bankrupt me. But hypothetically I want to pay
Speaker 1: you ten dollars, and it just so happens that you
Speaker 1: and I use the same bank. So I tell my bank, hey,
Speaker 1: I want to transfer ten of my dollars what are
Speaker 1: in my account to my friends account, so that those
Speaker 1: dollars that were mine now become their dollars. And the
Speaker 1: bank first verifies that I actually have ten dollars in
Speaker 1: my account that I can transfer, and that you definitely
Speaker 1: have an account with that same bank, so that there's
Speaker 1: a place to transfer it to, and then the bank
Speaker 1: handles the transfer and the books are balanced, and all
Speaker 1: that is really easy because it's all in house. But
Speaker 1: what happens if you and I use different banks, Like
Speaker 1: I have one bank and you use a different bank. Well,
Speaker 1: then the money has to be moved around. And when
Speaker 1: banks move money around, they are not shipping cargo containers
Speaker 1: filled with cash. If you really take a step back,
Speaker 1: it just looks like banks are just kind of moving
Speaker 1: numbers around. Like the account for what's do when the
Speaker 1: paying that number goes down by whatever the amount was
Speaker 1: that was paid, and for the account what's receiving the
Speaker 1: paying that number goes up by that same amount. I
Speaker 1: am skipping over some stuff like I'm skipping the bit
Speaker 1: where during transfers you typically have parties that are charging
Speaker 1: for the transfer service, so it's never as simple as
Speaker 1: the same amount going in as coming out, which gets
Speaker 1: further complicated when we talk about international transfers because that
Speaker 1: also includes things like currency conversions as well as other fees.
Speaker 1: So on a simplified level, if I wire you ten bucks,
Speaker 1: my bank account goes down by ten bucks and yours
Speaker 1: goes up by ten bucks, or you know, the equivalent
Speaker 1: in whatever your currency is minus whatever fees were incurred
Speaker 1: along the way. But there is a lot more going
Speaker 1: on there because there has to be I mean, how
Speaker 1: does the actual money shift over from one institution to another.
Speaker 1: If we're using two different banks, how does the ten
Speaker 1: bucks and amount I have with my bank actually changed
Speaker 1: to an amount that you have with your bank. Well,
Speaker 1: if our two banks have reciprocal accounts, which is also
Speaker 1: called correspondent accounts, it's I think it's more common to
Speaker 1: hear correspondent accounts in Europe and reciprocal accounts in the
Speaker 1: United States. Anyway, That means they just settle the actual
Speaker 1: transfer on the back end. Usually the person that gets
Speaker 1: the money transferred to them has access to the funds
Speaker 1: pretty much right away, but the formal settlement might take
Speaker 1: a little bit longer between the two banks. This also
Speaker 1: means that if something were to go terribly wrong, you
Speaker 1: might find yourself ten bucks overdrawn if you grab the
Speaker 1: cash right away and something happened on the back end.
Speaker 1: Because there is risk here. If one of the two
Speaker 1: banks is unstable and goes under then any transfer represents
Speaker 1: a potential loss. But assuming everything's okay, here's how it works.
Speaker 1: So reciprocal accounts or uh, you know, the correspondent accounts,
Speaker 1: these mean that each of the banks actually has a
Speaker 1: bank account with the other bank, So We'll say. Let's
Speaker 1: use an example where you have Bank A and Bank B.
Speaker 1: I use Bank A, you use Bank B. And it
Speaker 1: turns out that Bank A has a reciprocal account of
Speaker 1: correspondent account with bank B, and bank B has a
Speaker 1: similar account with Bank A. Now I'm gonna send you
Speaker 1: ten bucks, and I tell Bank A to send ten
Speaker 1: dollars to your account in Bank B. Bank A reduces
Speaker 1: the amount in my account by ten dollars and then
Speaker 1: adds ten dollars to its own bank account that is
Speaker 1: with Bank B, so essentially is depositing ten dollars into
Speaker 1: its account in Bank B. Then Bank A tells Bank B, hey, yo,
Speaker 1: I just sent you a tenor could you drop that
Speaker 1: into the bank account for insert your name here. Bank B,
Speaker 1: after verifying the Bank A's account with them had in
Speaker 1: fact increased by ten dollars with then add ten dollars
Speaker 1: into your account. But here's another twist. It's not like
Speaker 1: every bank has an account with every other bank, which
Speaker 1: means sometimes we need another party in here. We need
Speaker 1: a third party bank that maintains lots of accounts with
Speaker 1: other banks, uh, sort of a banks bank, if you will.
Speaker 1: So here in the United States, the Federal Reserve serves
Speaker 1: that function for tons of banks, hundreds of them. So
Speaker 1: going back to our example, let's say Bank A and
Speaker 1: Bank B do not have reciprocal or correspondent accounts with
Speaker 1: each other, but they do each have accounts with the
Speaker 1: Federal Reserve. Well, now, when I tell my bank to
Speaker 1: wire you ten dollars, that communication must go through the
Speaker 1: Federal Reserve, where Bank A puts the money into its
Speaker 1: account with the FED. And the FED then, as kind
Speaker 1: of like our very first example, where you have two
Speaker 1: people using the same bank, it balances the books internally
Speaker 1: and moves the money from Banquet's account to Bank b's
Speaker 1: account that is also with the FED. And then Bank
Speaker 1: A tells Bank B, Hey, yo, check your account with
Speaker 1: the FED. There's a sweet tent spot in there that
Speaker 1: I need you to PLoP into the account of insert
Speaker 1: your name here, and voila money transfer. Now, these transfers
Speaker 1: often happen, you know, they happen over clearance systems that
Speaker 1: clear those those payments, they verify and validate them. Here
Speaker 1: in the US, the big one is FED wire. There
Speaker 1: are other systems for large money transfers in the United States,
Speaker 1: but there's no real need to dive into all of
Speaker 1: those just yet. We will touch on some of them
Speaker 1: a little bit later. And of course this can get
Speaker 1: more and more complicated. You start getting into a six
Speaker 1: degrees of separation kind of situation. You might actually need
Speaker 1: a fourth bank in the mix to facilitate a transfer
Speaker 1: right because there might not be a single common bank
Speaker 1: that links the senders bank account to the recipient's bank account.
Speaker 1: This becomes increasingly common when you're talking about banks that
Speaker 1: are in different countries. The two endpoints might not have
Speaker 1: that single third party bank in common, so the transfer
Speaker 1: kind of has to go through hop scotch through various
Speaker 1: connections in order for everything to be settled. Uh. Typically speaking,
Speaker 1: the more connections that has to go through, the more
Speaker 1: fees are incurred, and the less money is going to
Speaker 1: come out the other end when it finally gets there. Now,
Speaker 1: all I'm doing here is describing some very high level
Speaker 1: concepts when it comes to moving money around. There's a
Speaker 1: lot more that goes into all of this, with special
Speaker 1: identify irs for the accounts and banks that are all
Speaker 1: necessary so that the money from the correct accounts ends
Speaker 1: up at the correct destinations. So without those designations, without
Speaker 1: those guarantees. We would not have confidence in our financial
Speaker 1: systems because we would never be sure that the money
Speaker 1: we were sending to someone was actually going to right person.
Speaker 1: And when people lose confidence in financial systems, the systems collapse.
Speaker 1: So the whole house of cards depends upon people having
Speaker 1: this confidence in them. I have a lot more to
Speaker 1: say about all of this, but before we get into
Speaker 1: more of it, let's take a quick break. Okay, we're back.
Speaker 1: So in order to make money transfers work, particularly between
Speaker 1: banks that are in different countries, we have to establish protocols,
Speaker 1: that is, the rules that we use by which money
Speaker 1: can move around. We also have to establish the actual
Speaker 1: communication systems the infrastructure, so that will facilitate the movement
Speaker 1: of money at a speed that is useful. Uh. If
Speaker 1: it took days or weeks or months for customers to
Speaker 1: have a transfer go through, whether we're talking individuals or
Speaker 1: companies or countries, commerce would slow way down and that
Speaker 1: would not be acceptable. And um A big part of
Speaker 1: this is the actual messaging system that financial institutions will
Speaker 1: use to notify one another of payments. So in the
Speaker 1: old days, you could do this over telegraph wires. In fact,
Speaker 1: that's where we get the term wire transfers because in
Speaker 1: the old days, a customer could go to a telegraph office,
Speaker 1: they could pay an amount to that office and say,
Speaker 1: I want to wire this money to my cousin who's
Speaker 1: in across the country in California, and the telegraph operator
Speaker 1: would send a message to the appropriate destination, and then
Speaker 1: your cousin in California would go to their local telegraph
Speaker 1: office and once verified, that office would pay out the
Speaker 1: amount that you were wiring over, minus whatever fees you
Speaker 1: had to pay in order to do this. Now, this
Speaker 1: evolves slight lee over the years into more and more
Speaker 1: complex systems such as tell x Telex essentially involved using
Speaker 1: teleprinters to communicate across phone lines to send messages to destinations.
Speaker 1: So you could actually, you know, type out a message
Speaker 1: and it would send it over to telephone lines to
Speaker 1: a printer that would print out that message. And banks
Speaker 1: for using this in order to do big money transfers.
Speaker 1: But obviously, as the world became more interconnected and more complicated,
Speaker 1: and more and more businesses were expanding beyond the borders
Speaker 1: of their native countries, we needed a more sophisticated communication
Speaker 1: system to handle all that and it really became necessary
Speaker 1: as global banking grew and evolved. In addition, there was
Speaker 1: tensions within the financial industry there always are, uh. There
Speaker 1: were banks such as City Bank, based out of New
Speaker 1: York in the United States that created early proprietary messaging standards,
Speaker 1: but that proprietary bit meant that other banks really weren't
Speaker 1: too keen to have to adopt a standard that was
Speaker 1: created and potentially controlled by a single entity like City Bank.
Speaker 1: It would mean that if you know, City Bank was
Speaker 1: completely in charge of making changes and updates, they wouldn't
Speaker 1: really have a spot at the table to make suggestions,
Speaker 1: it would And so you know, no one wants to
Speaker 1: play by somebody else's rules. They want to be the
Speaker 1: ones to define the rules. Other methods that competed with
Speaker 1: City banks popped up and it all became a mess
Speaker 1: because one thing you really need in finance is interoperability, right.
Speaker 1: You want everyone to be playing by the same rules,
Speaker 1: Otherwise you run into these pain points where you have
Speaker 1: to switch from one rule set to another just in
Speaker 1: order to get the money to move from point A
Speaker 1: to point B. So there was a very real danger
Speaker 1: that different proprietary systems were gonna make international transfers more complicated,
Speaker 1: not easier, and really, when you boil it down, complicated
Speaker 1: often leads to being more expensive. Nobody wants that. So
Speaker 1: in Europe in the early nineteen seventies, nearly two d
Speaker 1: forty banks collaborated on finding a way to make this
Speaker 1: work and established both a communication infrastructure and a common
Speaker 1: messaging language for the purposes of money transfers. One decision
Speaker 1: they made was to locate the headquarters of their new organization,
Speaker 1: which was SWIFT, in Belgium. Specifically, it's headquartered in a
Speaker 1: suburb in Brussels, and you might wonder, well, why did
Speaker 1: they choose that location, And it's largely because you had
Speaker 1: two massive parties that were really playing tug of war here.
Speaker 1: You had the Finance District of New York on one
Speaker 1: side and the Finance District of London on the other side,
Speaker 1: and both of them really wanted to have, you know,
Speaker 1: more of a say in how this developed. So Brussels
Speaker 1: was kind of considered neutral territory where the parties could
Speaker 1: be assuaged. The No One arm of the financial industry
Speaker 1: would set all the terms, and then the members of
Speaker 1: SWIFT began to work to build out the protocols and
Speaker 1: communication system that would support what they wanted. Now to
Speaker 1: be clear, Swift's purpose is not to actually serve as
Speaker 1: a financial institution. It is not balancing the books, it
Speaker 1: is not clearing transactions. No actual money passes through Swift,
Speaker 1: so that all of that, the actual clearing of transactions
Speaker 1: that gets handled by some other service such as fed wire.
Speaker 1: There's one that's called CHIPS, which isn't just an old
Speaker 1: TV show about motorcycle cops. It's also an acronym for
Speaker 1: clearing House Interbank Payment System, which is out of New York.
Speaker 1: Fedwire and CHIPS are just two clearing systems. Fedwire being
Speaker 1: a US federally regulated system, CHIPS being operated by a
Speaker 1: private company called the New York clearing House Association. But
Speaker 1: there's also other ones. There's like the Bankers Automated Clearing
Speaker 1: System or b ACS BACKS that is a very similar
Speaker 1: type of organization. It operates out of the United Kingdom.
Speaker 1: These are the types of institutions that are actually moving
Speaker 1: the money around. But what SWIFT is doing is serving
Speaker 1: as a communications system between banks and financial institutions, so
Speaker 1: it can carry the message that says, hey, bank A,
Speaker 1: you need to transfer X amount of money to bank
Speaker 1: b and Swift has to do this in an efficient, fast,
Speaker 1: and critically a secure way. And that's actually the real
Speaker 1: value of Swift that it allows for financial institutions to
Speaker 1: send these messages about moving money around in a way
Speaker 1: that is dependable and safe. Part of that security is
Speaker 1: that Swift also doesn't really maintain financial information on an
Speaker 1: ongoing basis. It's what is called a store and forward operation,
Speaker 1: meaning it holds onto information really only as long as
Speaker 1: it is necessary to complete a transaction. Swift the organization
Speaker 1: set up a private international communications network specifically dedicated to
Speaker 1: financial transaction messages. So if you think of the Internet
Speaker 1: as a network of networks, Swift is a network, a
Speaker 1: specific network for the sole purpose of financial institutions sending
Speaker 1: these messages in order to make money move around the world. Uh.
Speaker 1: The need for a private network was clear because the
Speaker 1: demands of finance were increasingly growing as globalization increased as well,
Speaker 1: and if the financial institution was just relying on leasing
Speaker 1: out some some network infrastructure from other providers, they would
Speaker 1: be hitting up against their limits pretty quickly on a
Speaker 1: regular basis, and that just didn't make sense. It made
Speaker 1: more sense for them to build out a system that
Speaker 1: was solely dedicated for the financial industry. A year after
Speaker 1: the organization's founding, so this is nineteen seventy four, the
Speaker 1: members of Swift decided to contract with a company called
Speaker 1: Burroughs Corporation based of Detroit, Michigan, here in the United States.
Speaker 1: That company would supply the computer equipment that would handle
Speaker 1: these electronic messages, and also the company installed the systems
Speaker 1: around the world, so these would be the backbone, the infrastructure,
Speaker 1: the actual hardware that carries the electronic messages across the
Speaker 1: Swift system. And it took four years for the Swift
Speaker 1: organization to design and and bring online the Swift system.
Speaker 1: It officially launched in nineteen seventy seven when Prince Albert
Speaker 1: of Belgium sent the first message over the Swift system. UM.
Speaker 1: I'm not sure what he sent, Maybe it was where's
Speaker 1: my money? Anyway, at launch, Swift had more than five
Speaker 1: member banks across fifteen countries, and two years later, in
Speaker 1: nineteen Swift was handling more than a hundred twenty thousand
Speaker 1: transfer messages per day, and a major part of Swift
Speaker 1: was the standardization of those messages. See back in the
Speaker 1: tell X days when people were using teleprinters, there was
Speaker 1: no international standard. People would use forms, and forms could
Speaker 1: vary from institution to institution. They all covered the same stuff,
Speaker 1: but they were laid out differently, right, so you would
Speaker 1: have to really look over the form and say, all right, well,
Speaker 1: now I found the account number, for example, and here's
Speaker 1: where the amount is. All those sort of things would
Speaker 1: be different from one institution to another, and that was
Speaker 1: a bit of an issue. Swift standardized that. However, the
Speaker 1: members of Swift also wanted to create a protocol for
Speaker 1: electronic message formats that was at the same time backwards
Speaker 1: compatible with the old telex system, because in the early
Speaker 1: days a lot of institution were still dependent upon tell x,
Speaker 1: so it's not like everyone switched over to Swift on
Speaker 1: day one. It would take a while, which meant they
Speaker 1: wanted to make sure that any messages sent over Swift
Speaker 1: could also travel over tell X in order to minimize
Speaker 1: the impact. Otherwise, like if you change everything overnight and
Speaker 1: you require everyone to get on the same page, it
Speaker 1: just takes forever for that to actually happen. So this
Speaker 1: was a pretty important part of their decision. Tell X
Speaker 1: designated banks using a bank Identify R code, which is
Speaker 1: a unique code for each bank, Like you have to
Speaker 1: have a specific individual code so that you not only
Speaker 1: know what bank it is, but what branch, you know
Speaker 1: what location you're talking about. So these are kind of
Speaker 1: like fingerprints. They are unique to specific banks or financial institutions.
Speaker 1: Swift would adopt that same approach, but they called it
Speaker 1: the Swift code. Swift has evolved over the years and
Speaker 1: has been at the center of various tugs of war
Speaker 1: between different members of the organization. The current version of
Speaker 1: Swift dates to two thousand five, at least that's when
Speaker 1: it was completed. It actually started a little bit earlier,
Speaker 1: but you know, they regularly go in and tweak things
Speaker 1: and make changes to make things work more smoothly, and
Speaker 1: to get into all the intricacies of Swift protocols would
Speaker 1: get really dry, and I argue it would also be
Speaker 1: really hard to follow. Like pretty quickly I would reach
Speaker 1: a point where I know I wouldn't be completely aware
Speaker 1: of what it was I was saying. The smart folks
Speaker 1: out there, they might listen to me and go, well,
Speaker 1: I know what he's trying to say, but he clearly
Speaker 1: doesn't understand it. I'd rather just sidestep that and tell
Speaker 1: you it gets more technical and more complicated than I
Speaker 1: am comfortable covering. However, it is important to understand that
Speaker 1: SWIFT has rules in place that define things like the
Speaker 1: kinds of transactions that can happen between different parties. Um
Speaker 1: away of identifying specific banks, including specific branches and locations,
Speaker 1: it has ways of providing a secure means of communication
Speaker 1: between all the members of the system and thus makes
Speaker 1: it simpler for these big organizations to move money around
Speaker 1: while minimizing the potential for errors. Okay, well, all that
Speaker 1: is kind of the basics on the Swift system. When
Speaker 1: we come back, I'll talk about what it means to
Speaker 1: quote unquote ban Russia from Swift. But first let's take
Speaker 1: another quick break. All right, what does it mean to
Speaker 1: cut off a nation from Swift? First of all, it
Speaker 1: has happened before. Russia is not the only country to
Speaker 1: have been effectively uh blacked out in the Swift system.
Speaker 1: That has happened previously with Iran. So what does this
Speaker 1: actually mean. Well, by denying certain major Russian banks in
Speaker 1: this case, and financial institutions in Russia the use of Swift,
Speaker 1: those organizations are not able to engage in international money transfers.
Speaker 1: At least they can't do it as easily as they
Speaker 1: could before. They can no longer send or receive communications
Speaker 1: over this network. And since those communications are kind of
Speaker 1: what instigates the transfer of moneies, that really is an
Speaker 1: enormous economical impact on not just the targeted nation, but
Speaker 1: everyone else too. And uh yeah, that that that can
Speaker 1: have a massive impact well beyond just the country that
Speaker 1: gets blacked out because of that, you know, international component.
Speaker 1: Blacking out one region has this ripple effect on others.
Speaker 1: In fact, the United States is one of the countries
Speaker 1: that sees international transfers to and from Russia a lot,
Speaker 1: like when you're looking at where money is moved to
Speaker 1: and from United States is one of the big ones
Speaker 1: with Russia. So that means that if Russia can't engage
Speaker 1: in these kinds of transfers anymore because it's been blacked
Speaker 1: out through SWIFT, that has an impact on my country
Speaker 1: as well in the United States because it also you know,
Speaker 1: it's it's a party to those transfers. Now, the goal
Speaker 1: of putting in this band is to squeeze Russia by
Speaker 1: hindering its financial system. It wasn't until Russia had really
Speaker 1: committed to invading Ukraine that we actually saw some movement
Speaker 1: on this front. A lot of nations, including the United States,
Speaker 1: were initially really reluctant to ban Russia from Swift And
Speaker 1: you could say, well, maybe that's because of these ripples
Speaker 1: I'm talking about. That's that these economic ripples that go
Speaker 1: through the rest of the world. How it's not just
Speaker 1: Russia that's quote unquote being punished. But I'm also sure
Speaker 1: there is no shortage of conspiracy theories out there that
Speaker 1: have a more sinister explanation for it, like idea that
Speaker 1: certain parties in power have economic interests that are going
Speaker 1: to be directly impacted by this ban, and that is
Speaker 1: why they were reluctant to commit to it, because it
Speaker 1: would have a direct consequence on their personal wealth. I'm
Speaker 1: sure there are tons of those theories out there. I
Speaker 1: don't know of any offhand, but I would be shocked
Speaker 1: to learn that there aren't any of those out there. Um,
Speaker 1: but yeah, that that's the stuff they don't want you
Speaker 1: to know topics, So I'll leave it there. Ultimately, the
Speaker 1: choice was made to ban certain Russian institutions from Swift,
Speaker 1: So it's not like every bank in Russia is necessarily
Speaker 1: affected by this, but the major ones certainly are. Now,
Speaker 1: Russia does have its own internal payment system similar to Swift.
Speaker 1: Like it does the same it fulfills the same purpose
Speaker 1: as Swift UH. This one is called SPF S and
Speaker 1: that has around four hundred member organization and according to
Speaker 1: Russia's Central Bank, it handles about a fifth of all
Speaker 1: of Russia's domestic transfers UH. And that's a good opportunity
Speaker 1: to mention that Swift isn't just used for international money transfers.
Speaker 1: It could be used within a nation as well in
Speaker 1: order to move money between banks, and in fact, some
Speaker 1: individual banks have adopted Swift standards for internal use. They're
Speaker 1: not directly porting the Swift system to use in house,
Speaker 1: but they typically will wrap the Swift system within whatever
Speaker 1: their you know, own banking system is, and they rely
Speaker 1: on that because, of course, it makes way more sense
Speaker 1: to just use the same system as much as possible,
Speaker 1: rather than have to deal with potentially competing systems. Now, interestingly,
Speaker 1: Russia really invested in the creation of this spf S
Speaker 1: system around two thousand and fourteen. And you might say, well,
Speaker 1: what's significant about that? Why did Russia start creating its
Speaker 1: own sort of a payment system in internal payment system
Speaker 1: around that time. Well, two thousand fourteen was when the
Speaker 1: United Kingdom was trying to convince Swift to cut off
Speaker 1: access to Russian banks. So why was the UK arguing
Speaker 1: that back in two thousand fourteen, Well, that just happened
Speaker 1: to deal with an earlier Ukrainian invasion, because, as we
Speaker 1: have learned many times, history repeats itself. Then there's also
Speaker 1: another system called the Cross Border inter Bank Payments System
Speaker 1: or SIPs c i p S that originates out of China.
Speaker 1: That system isn't nearly as widely adopted as Swift and others,
Speaker 1: and it's also pretty young. It's a pretty recent system,
Speaker 1: but potentially could serve as a kind of lifeline for
Speaker 1: Russia's banking industry if this band stretches on for a
Speaker 1: really long time. There's also been talk of Russia potentially
Speaker 1: leaning on cryptocurrency to work around sanctions, like the idea
Speaker 1: of moving money around by converting stuff into crypto, doing
Speaker 1: crypto transfers and then converting that back into other currencies,
Speaker 1: or just keeping it in crypto and using transfers that way.
Speaker 1: That is theoretically possible, but it's largely impractical. And the
Speaker 1: main reason I say that isn't like to slag off crypto.
Speaker 1: Y'all know I'm not big on crypto, But this doesn't
Speaker 1: have to do with that. No, it has to do
Speaker 1: with adoption. Uh, despite what true believers might have you think,
Speaker 1: adoption for crypto is not that widespread. And if if,
Speaker 1: if you don't have the right parties invested in a
Speaker 1: particular system, then you can't really transfer money around. So
Speaker 1: it has very limited utility and it adds in a
Speaker 1: lot of extra steps. And as I said, the more
Speaker 1: steps you add when you're talking about money transfers correlates
Speaker 1: with extra costs. So generally speaking, no one wants to
Speaker 1: see significant amounts of the money they're trying to transfer
Speaker 1: get gobbled up in various types of fees. So what
Speaker 1: are the long term implications here? That's kind of hard
Speaker 1: to say. It all depends really on how this Russian
Speaker 1: Ukrainian situation pans out. Uh. The longer these sanctions are
Speaker 1: on Russia, the harder it's going to be for oligarchs
Speaker 1: who depend upon large transfers from outside the country getting
Speaker 1: at that money. Um, we have heard that a lot
Speaker 1: of Russian oligarchs are traveling all over the place. Part
Speaker 1: of that might just be for them to access wealth
Speaker 1: that they have stored in various locations that they otherwise
Speaker 1: can't easily move, Like if they can't move the money
Speaker 1: to them, they'll move to where the money is. That's
Speaker 1: a possibility, but we'll have to see how this rolls out. Uh,
Speaker 1: there's a good chance that this is going to have
Speaker 1: a really negative impact on Russian citizens who are going
Speaker 1: to find it increasingly difficult to do things like send
Speaker 1: money internationally or purchase things from stores that are based
Speaker 1: in other countries. Um, maybe even doing some basic banking
Speaker 1: stuff like a lot of that's going to be hard
Speaker 1: on people, And that's kind of a shame because it's
Speaker 1: not really the people who are necessarily responsible for the
Speaker 1: reason for the sanctions. Uh. Sometimes these sanctions really put
Speaker 1: the hurt on innocence in an effort to build pressure
Speaker 1: on political entity in order to convince them to stop
Speaker 1: whatever it is they're doing. The message being if you
Speaker 1: don't do that, your own people are going to rise
Speaker 1: up against you. But that's really unfortunate because what it
Speaker 1: really means is you have to put the squeeze on
Speaker 1: people who don't necessarily deserve it and who can least
Speaker 1: afford to be squeezed. So that's the downside to these
Speaker 1: I'm not saying that economic sanctions don't work, and I'm
Speaker 1: not saying that they're not necessary at time. I'm just
Speaker 1: pointing out that the reality of economic sanctions often means
Speaker 1: that you've got a lot of collateral damage that is
Speaker 1: dealt to people who don't have a direct relationship with
Speaker 1: the underlying issue that that necessitated the sanctions in the
Speaker 1: first place. But that's because the world is a complicated place,
Speaker 1: and if you're trying to convince governments to to not
Speaker 1: take certain actions without resorting to you know, violence and war,
Speaker 1: then you know you've got some limited options, especially if
Speaker 1: you have a country that is led by a you know,
Speaker 1: authoritarian and belligerent government, and there are there's no shortage
Speaker 1: of those in the world unfortunately. But anyway, that is
Speaker 1: the underlying story behind Swift and what it is they're
Speaker 1: Like I said, there are lots of different systems that
Speaker 1: connect in with Swift that actually do the movement of money,
Speaker 1: but the Swift system itself is in valuable when it
Speaker 1: comes to facilitating these messagings so that we can actually
Speaker 1: have these transfers take place. Without it, we would be
Speaker 1: reliant on outdated modes that are not nearly as efficient
Speaker 1: or fast or safe. So I hope that's helpful. I
Speaker 1: hope you have learned something about Swift. It is very
Speaker 1: interesting because it is a an extremely focused niche network.
Speaker 1: Like most of the time when I think of networks,
Speaker 1: I think of more general purpose networks. I don't think
Speaker 1: about something as specific as this, so it was interesting
Speaker 1: for me to go in and really read up on
Speaker 1: the history and the evolution of Swift. So I appreciate
Speaker 1: the suggestion. If you have a suggestion for a topic
Speaker 1: I should cover in a future episode of tech Stuff,
Speaker 1: the best way to reach out to me is on Twitter.
Speaker 1: The handle for the show is text Stuff hs W
Speaker 1: and I'll talk to you again really soon. Text Stuff
Speaker 1: is an I Heart Radio production. For more podcasts from
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Speaker 1: or wherever you listen to your favorite shows.