Li Jing/Wen In recent days, with the escalation of the Conflict between Russia and Ukraine, some Russian banks have been announced that they cannot use the SWIFT system, which has aroused widespread concern around the world, so who is SWIFT? Where did it come from? How far is it from us, and from the current political and economic landscape of great global change?
The front of SWIFT ID: the symbol of the messenger and highway of the globe
Deliver the voice from the other shore
SWIFT is an acronym for the Society for Worldwide Interbank Financial Telecommunications. According to SWIFT's official website, Swift, a global member-owned cooperative and a leading global provider of secure financial information services, expresses its identity and mission in more detail on its Chinese webpage: "As a global industry cooperative, SWIFT is the world's leading secure financial messaging service. SWIFT provides the community with messaging platforms and communication standards, as well as products and services in the areas of connectivity, integration, identity, data analytics and compliance. ”
Therefore, SWIFT's identity is clear, it is a cooperative institution that serves the global financial industry and provides members with a "letter delivery" service. More simply put, SWIFT is a global financial industry messenger, courier brother, running among global users. From its establishment in 1973 to the present, SWIFT's social role is not fundamentally different from the fast horse transmission and pigeon transmission since ancient times, and the current postal express and telegram. The difference is that its customers are banks and financial institutions, and it is an important messenger of information that goods and services from around the world can cross borders to the other shore. SWIFT members are required to fill in the information in English in a fixed form according to the manual, and then quickly pass the information to the counterparty. It realizes "silent" dialogue with each other through a convenient system to achieve instantaneous information confirmation and exchange. In the 1997 movie "The Postman", the promotional video is that the postman rides a fast horse, "take hope, bring hope". For nearly five decades, SWIFT seems to have become a household name for the white dove flying in the global financial community.
· A community that reflects the concerns of global financial peers
After the end of World War II, in the wind of peace, the global economy recovered rapidly, until the Nixon shock in 1971, the Bretton Woods system collapsed, and the world grew rapidly for nearly 30 years. SWIFT was founded in 1973 during a period of great change in the world economic order. The first oil crisis broke out, oil prices rose, the world fell under stagflation pressure, and the economic order changed dramatically.
The establishment of SWIFT embodies the demands of the rapid growth of the global economy, creating a common language of international financial information services on the basis of the vision and innovative vision of global financial information services.
From the late 1960s and early 1970s, in the context of the rapid recovery of the world economy, seven European banks began to study the feasibility of universal international financial message exchange procedures for the establishment of an international communication system to provide rapid transmission services for international financial data and other information. The results of the study suggest that an international financial processing system should be established that would enable the correct, safe, low-cost and rapid transmission of standard international funds allocation information.
The results of this study were quickly implemented. In May 1973, 239 banks from 15 countries in the United States, Canada and Europe announced the official formation of a non-profit organization, SWIFT, headquartered in Brussels, Belgium. This organization aims to solve the problem of the inability of national financial communications to adapt to the rapid growth of international payment and clearing, and is responsible for designing, establishing and managing international networks for the transmission and routing of international financial information among the members of the organization. Swift began to design computer network systems in 1974 and completed the construction and development of the Global Interbank Financial Telecommunication Network (SWIFT Network) system in the summer of 1977 and was officially put into operation. Since its establishment, the number of SWIFT member banks has increased rapidly year by year. Beginning in 1987, non-bank financial institutions, including brokers, investment firms, securities firms and stock exchanges, began to use SWIFT.
1978 was the beginning of China's economic reform and opening up, after which China gradually resumed its legitimate seat in the International Monetary Fund and international organizations such as the World Bank, and its economic activities actively aligned with international standards. In 1980, SWIFT was connected to Hong Kong, and Bank of China joined SWIFT in 1983, being the 1034th member bank of SWIFT, and officially opened for use in May 1985, becoming an important milestone in the integration of the mainland with international financial standards. Since then, commercial banks and stock exchanges in Shanghai and Shenzhen have also joined SWIFT.
After entering the 1990s, all financial institutions in China that could handle international banking business, except for state-owned commercial banks, joined SWIFT. So far, according to the data published on SWIFT's official website, its messaging platform, products and services have connected more than 11,000 banks, securities institutions, market infrastructure and corporate users around the world, covering more than 200 countries and regions. SWIFT has become the best platform for banks to establish communication and mutual trust, better serve the real enterprises, and the best quality information superhighway.
The road to global common prosperity
SWIFT experienced the turbulence of the global economy in the 1970s and took advantage of the east wind of globalization since the 1980s, did not change its original intention, always adhered to the concept of serving customers, and developed rapidly. Although the growth philosophy summarized by practical experience such as "time is money, efficiency is life" and "if you want to be rich before building roads" formed in the era of China's reform and opening up, is not written in the charter of SWIFT's establishment, swift's practical actions show this development philosophy, which has developed into a global highway to common prosperity.
In the spirit of serving the community, SWIFT is inclusive, reliable, safe and efficient, becoming a true cooperative with global reach and inclusion. Serving 11,000 banks, securities institutions, market infrastructure and corporate users in more than 200 countries and territories, these figures are loud and clear. SWIFT has always been a caring person engaged in multinational business entities, under the concept of community, listening to the voices of the industry, in the nearly fifty years since its establishment, it has continuously improved its services, connecting modern advanced science and technology and services, making it the most reliable, convenient and safe highway for information release. By transmitting information through SWIFT and then connecting with a settlement system (such as CHIPS), the international payment is completed quickly.
With its fifty years of struggle, SWIFT has crossed the "Himalayas" of global communication, paved the way for the rapid growth of global trade and economy, and become an important infrastructure for globalization like global rules and institutions.
As SWIFT was originally built, it provides a common language for global financial inter-industry exchanges. SWIFT is very inclusive, it serves multi-currency messages, and the rmb message is also among the services, it provides a standardized English information message format, providing a common language for information exchange.
Currently, SWIFT provides the world with financial data transfer, file transfer, straight-through processing STP (straightthrough process), matching, clearing and netting services, operational information services, software services, certification technical services, customer training, 24-hour technical support.
SWIFT briefly expresses its vision of community and vision for the future on its official website, "Everything we do is to support the way of life in the world, and this way of life is changing rapidly. In this ever-changing world, Swift is also evolving, leveraging our expertise to help our communities grow faster and work together smarter. ”
So, from SWIFT's core business and development process, we can see that it has evolved into a global quasi-public good provided by the market.
The back of SWIFT's ID: a quasi-public good worldwide
SWIFT is essentially a cooperative organization, a platform and hub for the global financial community, it is not a beacon on the sea, it can be used free of charge, access to SWIFT services is to pay, which is the same as our mail mail to be stamped, so it is similar to the postal service system, preventive safeguards of the merit goods (merit goods) public goods, at the same time, it is similar to the water supply and electricity system, rail transport system of natural monopoly goods, is a quasi-public good provided by the market, This is the global ID on the back of SWIFT.
SWIFT makes money by providing messaging services. Headquartered in Brussels, Belgium, its branches are distributed all over the world, and its business covers almost all financial centers. On this information highway, the more pedestrians, the more fees, the more income. However, if it is a material highway, it will cause congestion, but the characteristics of swift information highway are not similar to congestion. On this high-quality road, the more pedestrians, the larger the scale of the service, the lower the fixed cost, and the huge scale benefits will be generated. SWIFT has a lower fee. For the same amount of content, SWIFT costs only about 18% of telex and only about 2.5% of cable. There is not only one SWIFT in the global messaging system, but the cost of its messages is the lowest, which can be described as "good quality and low price".
SWIFT has also designed user incentives. SWIFT updates the peak daily record of message delivery several times a year. The growth of the number of message transmissions and the number of users has produced economies of scale, with the increase of users, the amount of message transmission traffic increases, the company will give back these benefits to users by lowering the price of message transmission, and traffic growth will promote a significant reduction in user prices. SWIFT also implements the principle of differential pricing, providing users with price options, tailored to suit each user's situation, for example for large users, the company offers a fixed rate.
It can be seen that SWIFT is a friendly "natural monopoly" cooperative institution. Such a system design will further bring scale benefits, the more prosperous the global economy, the better SWIFT's business, the lower the cost of users, the more users will be obtained. All roads lead to Rome, and SWIFT is the best one. Each pedestrian becomes the maintainer of this good road, forming a virtuous circle of the company and customers. SWIFT is not only the best expert, the best know-how, the owner of "double E", but also has the best profit model. Fifty years ago, SWIFT was the pioneer of the information superhighway, and now it has become the leader and good runner of the information superhighway, "the forerunner is dominant", in today's rapid development of modern information technology, SWIFT has dominant characteristics in all aspects. This means that those who open up new roads mean higher initial costs, and those who pioneers must turn the road blue to open up the mountains and forests. As long as SWIFT provides services to the world in a spirit of openness and inclusiveness, the community will become increasingly globally inclusive, similar to being able to fly to airports around the world and set sail for ports around the world.
The dilemma of quasi-public goods: "detours" come at a price
SWIFT allows us to see the timeline of the world's economic growth of fifty years, and peace is the most important environment for its growth. The world needs SWIFT, SWIFT needs the world. SWIFT is neutral, an organization that users are constantly maintaining and developing, with its own corporate governance body, decisions made by a board of directors of 25 members, and its international governance and regulation reinforce the neutral and global character of its own cooperative organizational structure. Swift is headquartered in Belgium and complies with local and EU laws and regulations. In the course of nearly five decades of development, SWIFT has gone through many important events and made important decisions. The most prominent, challenging, and difficult decision was to remove users from SWIFT. Take Iran, for example, in 10 years, it has been removed from SWIFT twice, once in 2012 and once in 2018.
In 2012, the United States pushed the European Union to adopt Regulation No. 267/2012 on the grounds of limiting nuclear proliferation and combating terrorism in Iran. The regulations expressly prohibit professional financial communication service providers from providing specialized financial communication services to listed Iranian legal persons, entities and organizations. According to SWIFT's 2010 statistics, 19 banks and 25 related institutions in Iran sent and received 2.3 million financial messages for electronic exchange business through SWIFT. The ban came into effect on 17 March 2012. At the time, SWIFT's president said there was "no precedent" for similar practices, which was a direct result of international and multilateral actions to strengthen financial sanctions against Iran. By 2015, after sustained efforts, the parties reached the Iranian nuclear agreement, and according to the content of the agreement, some financial sanctions against Iran were lifted. In January 2016, many Iranian banks were removed from the EU sanctions list and subsequently re-added to SWIFT.
However, within a few years, in 2018, the Trump administration unilaterally withdrew from the Iranian nuclear agreement and once again asked SWIFT to remove Iranian financial institutions. However, this time and 2012 are different, this is a unilateral act of the United States, which has not been supported by the United Nations Security Council and the European Union. However, given chipps' absolute superiority in the international payment and clearing system, SWIFT, as a messaging system, is difficult to stand independently of chips, the core settlement system, and finally SWIFT eliminated Iranian financial institutions from the system in November of that year. Losing the SWIFT code is like a "refund", and the best road cannot be taken.
Swift's importance in global trading has brought it into the spotlight in the midst of international political turmoil. SWIFT does not make sanctions decisions, it is up to the government and legislators. Being removed by SWIFT is equivalent to "blocking the road" of users, removing a bank, affecting not the bank itself, but also enterprises, families, and individuals, involving the national economy and people's livelihood of many countries. Therefore, the United Nations reminds caution in the use of sanctions to avoid harming the innocent, and recommends smart sanctions.
Being "blocked" by SWIFT is arguably the most severe sanction, whether it is regarded as a nuclear sanction, a king sanction or a death sanction. In today's interdependent world economy, sanctions also bring great harm to the initiators of sanctions, "sanctions initiators are sanctioned", "kill a thousand enemies, self-harm eight hundred". On February 24 this year, Russia took special military action against Ukraine, the United States and the European Union jointly sanctioned Russia, removed some of Russia's commercial banks and financial institutions from THE SWIFT, and on February 28, the US Treasury froze the assets of the Russian Central Bank in the United States, prohibiting Americans from trading with the Russian Central Bank, the Russian Federal State Wealth Fund and the Russian Ministry of Finance. The implementation of the sanctions package will bring about a future impact on Russia's national economy and people's livelihood. SWIFT is a global information superhighway, Russia has been removed, not only Russia, but also the opposite trading partners, implicating multinational economic entities. For SWIFT, it will also lose a large number of users, affecting its revenue, globality and credibility. Because of sanctions, many transactions have to be "detoured" and the world has become so far away. With the escalation of the conflict and the involvement of many parties, the road to "Rome" is bumpy and limited.
We may have heard of INSTEX and SPFS as alternatives to overcoming sanctions and delisting SWIFT, but as this article illustrates, opening up a new path is necessarily a costly alternative.
Maintain a global supply mechanism for public goods
SWIFT is not a lifeline, but a cycle that is relevant to the global economy. The cycle of the global economy is like a subway network, a human body system. The subway network is the flow of people, the circulation of blood in the human body, SWIFT has been working hard for nearly fifty years, has established a global economic circulation network, connected to multiple nerves, with high centrality and greater intensity. For nearly five decades, millions of households have been maintainers of this network, stakeholders in this global public good, and provider of public goods.
Global public goods are built for the common good. If we stand under the "veil of ignorance", sunlight, air, water, biodiversity, the earth, and lighthouses are all public goods, fair international rules and institutions, and the current global stability and security are all public goods that involve our common interests. Damage to these items will cause harm to everyone.
After the outbreak of the international financial crisis in 2008, all countries have made policy adjustments in order to achieve economic recovery. The outbreak and spread of COVID-19 has plunged the world into a deep recession. The frequent occurrence of geopolitical conflicts and escalation will make the world economy in distress worse. The supply capacity and willingness of developed countries to global public goods have declined, and the current Russian-Ukrainian conflict has had a great impact on the operation of the global economy, the global trading system and the financial system. In his book on the Great Depression of 1929-1933, Kindlberg proposes six major public goods that developed countries should provide in times of crisis. This is shown in Table 1.
Table 1: Public goods in times of world economic crisis
Source: Author Reference [Us] Charles. P. Kindleberg, The World Economic Depression of 1929-1939. Shanghai: Shanghai Translation Publishing House, July 1986
Kindleberg, who made the purchase of cheap goods the first public good, noted that the last buyer has the same role as providing funds, and it is important to be able to maintain free trade and keep the economy running in times of crisis. Kindleberg's examination of the Great Depression of 1929-1933 summarizes the "asymmetrical" nature of the world economic cycle. If the world economy could function symmetrically, a worldwide depression could not occur. When a crisis occurs, the world must defend the world system in the public interest.
Find problems in reality and find answers in history. Of course, the size of the current world economy and the problems we face cannot be compared with more than 90 years ago, but the problems we face are similar, the suffering and lessons brought to the world by the crisis will not be different over time, compared with the past, we need a longer list of public goods, such as the maintenance of global financial infrastructure such as SWIFT, the supply of COVID-19 vaccines, etc.
Outlook: We need such a bridge
In May this year, SWIFT will celebrate its fiftieth birthday. These fifty years, which have transmitted information to the world, represent fifty years of world peace and development. SWIFT has become a symbol and spirit, as an inclusive global financial community, listening to the voices of the world, whether urban or rural, regardless of race and nationality, rich and poor, carrying trust and building bridges of communication. We expect swift to remain the most trusted messenger at a critical time of global political and economic change, reinforcing bridges of communication and bringing the world closer together.
We need such a bridge.
(The author is a professor at the School of Economics, Capital University of Economics and Business)