Swift move on Russia tells the tale of networking
Not for the first time, I was wrong when I, a few weeks ago, wrote in hope that the threat of Russia invading Ukraine was receding. Now that conflict has come, writing about technology seems almost fatuous, but the war, like the coronavirus pandemic before it, demonstrates how our world is tied together with information technology.
Nowhere is this more apparent than in the threat of cyber-warfare, with debate raging as to whether or not cyberattacks would trigger Nato’s clause five, the long and the short of which is that if one Nato member is attacked all other members strike back in unison. Beyond this, the spectre of sanctions does much the same, and as of this week financial sanctions have been applied to Russia – albeit selectively.
EU Commission president Ursula von der Leyen said on Sunday that a “certain number” of Russian banks would be blocked from making international payments, something she said would “stop them from operating worldwide and effectively block Russian exports and imports”.
Most of us have made international payments using our IBAN and SWIFT numbers, but the conflict has brought this not often understood technology to the fore. Swift is not just a fancy sort code, it is a cross-border intra-bank messaging service, a kind of WhatsApp or Signal for financial institutions. Founded in the 1970s and based in Belgium, SWIFT (Society for Worldwide Interbank Financial Telecommunication), does include the sorting or routing code we all know, but it also runs SWIFTNet, a secure communications network that connects some 11,000 banking and securities organisations globally.
Locking Russia out of SWIFT will not stop the country’s banks performing cross-border transactions, but it will hamper them, adding cost and slowing transaction speed as they would be forced to fall back on other technologies such as e-mail, faxes or even telex – a forgotten technology that has never quite died.
Minister for Foreign Affairs Simon Coveney said he “made the case” at EU level for excluding Russia from SWIFT but, at the time of writing, there is some confusion as to why the ban has not quite occurred. French finance minister Bruno Le Maire described blocking access to SWIFT as “the financial nuclear weapon”, but said that his government was not opposed to the move. Italy, reported as being against the move, has either changed its mind or was misreported, and the government has now issued a statement saying: “Mario Draghi reaffirmed to President Zelensky that Italy fully supports and will support the European Union’s line on sanctions against Russia, including those concerning SWIFT”.
Lacking certainty
The United States appeared to vacillate on the question, with the Biden administration at first reluctant to block Russia from SWIFT but later agreeing. For the moment, not all Russian banks have been locked out: cynically, it is worth noting that, as yet, only seven Russian banks have been cut off – and Sberbank and Gazprombank are not among them.
Leaving this aside, it is worth thinking about what a transfer actually entails and, indeed, what money actually is.
“If you think about it, there is no such thing as transferring money. It only exists as ones and noughts in a computer,” said Peter Rose, founder of digital transformation specialists Tekenable.
This point is crucial: SWIFT is ‘only’ a messaging service, but the actual ‘transfer’ is the reduction of a number on one balance sheet and its increase in another. There are intermediaries, of course, as it would be a logistical impossibility for every bank on earth to have an open channel of communication with every other bank, hence Swift’s creation as a network.
SWIFT’s real innovation, though, was quite straightforward: it put an end to human error.
“In the past, sending a transfer was just like writing a letter. What SWIFT did was put a system in place to standardise the message and it vastly reduced the mistakes and they evolved that over time,” said Rose.
So far, Iran holds the dubious honour of being the only country ever kicked out of SWIFT, and this and other sanctions have certainly had an impact on its economy. Notably, Iran’s oil is often sold using illegal ship-to-ship transfers performed by oil tankers with their location transponders switched off. Presumably, however, someone somewhere is facilitating the payments.
One possible reason for the reticence, so far anyway, to cut Russia off entirely is that while a SWIFT ban would certainly inconvenience Russian banks, it could drive competition in financial technology and possibly even hand control to countries outside the US sphere of influence.
Rival technologies and networks do exist, and a ban on Russia using SWIFT could accelerate acceptance of China’s Cross-Border Interbank Payment System (CIPS), while Russia’s central bank governor Elvira Nabiullina has said the country’s own internal System for Transfer of Financial Messages (SPFS) can “replace [the] Swift international payments system” – though just who else might sign up to use SPFS is unclear.
Alternatively, there has been talk of Russia using bitcoin, though this seems unlikely, not only because bitcoin’s volatility makes it useless as a currency regardless of whatever properties it may or may not possess as an asset class, but also because it is inherently inefficient and, therefore, excruciatingly expensive to use. Moreover, any serious move toward bitcoin would likely result in a swift US ban on cryptocurrency to match the one already enacted by China.
What is certain though, is that more and more of the world is represented by data. Make no mistake: we still live in a material world, something rising gas prices aptly demonstrate, but riding on top of physical assets, from fuel to food and even tanks, can be found streams of digital data. Little wonder, then, that tech bans and boycotts are now on the agenda.
Subscribers 0
Fans 0
Followers 0
Followers