The US and the European Union partially expel Russia from the SWIFT system to stop the attack on Ukraine. It is probably the sanction with the greatest economic impact that can be imposed on the country. But what is the SWIFT system? We tell you everything you need to know about this payment method and why, without it, Russian banks will not be able to make international transactions.
The disconnection of some Russian banks from the international payment platform known as the SWIFT system is one of the pressure initiatives that third countries are agreeing on to cause economic damage to Russia and dissuade its president, Vladimir Putin, from continuing with the invasion of Russia. Ukraine. In this way, Russia is partially economically isolated at the international level because all income and payments of the expelled banks are blocked, making transnational operations with entities that use the SWIFT system impossible.
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SWIFT is the acronym for Society for World Interbank Financial Telecommunication, Society for International Interbank Financial Communications. It is an essential high-security payment system in international finance, which is used to exchange information through encrypted messaging, making the different banking movements between international entities possible and easier.
This cooperative group was founded in Brussels in 1973, thus offering the opportunity to create a common language between banks to carry out different financial movements. It currently has some 11,000 financial institutions in more than 200 countries and is run by a 25-member board. In short, it is a shared data network in which 10 million messages are processed daily, which enables international bank transfers.
As we have seen, the vast majority of banks around the world belong to the SWIFT network, thus creating a fast and efficient system of communication between all of them with a common language. Each bank has a different code, which is made up of between 8 and 11 alphanumeric digits that contains:
In this way, with the SWIFT code you can know from where a transaction is being made.
In order to carry out an operation with the SWIFT code, several key factors must be involved in the transaction. They are the following:
This codified messaging system between banking entities is essential in the financial system because it has a series of advantages that few other systems can match, although it also has some drawbacks that we will mention later. Next, we show you the advantages that the SWIFT procedure offers you when carrying out any transaction:
Regarding the drawbacks, the most notable is that the SWIFT system does not take care of the commercial risk of the collection. If we find ourselves in a situation where the merchandise has been delivered before the payment has been made, everything will depend on the ordering party to comply with the capital payment term.
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