What is the SWIFT code for?
What is the SWIFT code and why is it so important in the financial world? What are the implications of expelling a country’s financial institutions from this banking messaging network? Iu Alemany, 11Onze’s Back Office and Customer Service Manager, reveals all the keys.
SWIFT stands for Society for World Interbank Financial Telecommunication, “a cooperative society based in Belgium that was founded in 1973”, as the 11Onze Back Office and Customer Service Director explains. Alemany points out that it is not a payment system, but a messaging system, which speeds up international transfers and “allows the parties involved to be identified in a standardised, secure and error-free manner”.
Some 12,000 institutions in more than 200 countries, both financial and non-financial, are connected through the SWIFT system, which facilitates “some 32 million messages on average” to be exchanged every day.
The SWIFT code normally consists of eleven characters, although sometimes it can be as few as eight. The first four letters identify the bank or institution. The next two letters indicate the country. The next two correspond to the location of the institution, for example, “BB would mean Barcelona”, as Alemany explains. And the last three digits identify the bank office or branch. In this case, “if three ‘Xs’ appear, it means that the branch carries out the settlement centrally”, explains the 11Onze’s Back Office and Customer Service Manager.
A tool for political pressure
Seven Russian banks were excluded from the SWIFT system in March to put pressure on Russia with its conflict with Ukraine. As Alemany explains, cutting off communication between a country’s banks and the rest of the global financial system makes it impossible for that country to carry out “most of its financial transactions around the world, blocking exports and imports”. Ultimately, the aim is to hinder “its ability to operate globally”.
Iran was excluded from the SWIFT system in 2012 as part of sanctions over its nuclear programme. As a result, it lost almost half of its oil export revenues and 30 per cent of its exports. And Russia had already been threatened with this measure in 2014, when it annexed Crimea.
Iu Alemany warns that this measure could be detrimental in both ways, not only for the sanctioned country: “If we are thinking of applying this measure to a strong economy, highly interconnected to the rest of the world and which has a series of basic products for the rest of the world, we must be careful”.
As we explained in the article “SWIFT: use and abuse of an alphanumeric code”, the exclusion of some Russian banks from the SWIFT system will be an incentive for China, Russia and even the European Union to look for alternative systems that can shield their economies from this political pressure measure.
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