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Russia-Ukraine conflict: what is Swift and why is it important?

Swift has been in the news lately because it could affect how Russia conducts financial transactions with the rest of the word.

Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a member-owned cooperative that provides secure financial transactions for its members by allowing individuals and businesses to make electronic or card payments even if the customer or seller is a different bank. used, according to Investopedia.

The system assigns each affiliated institution a unique ID code that identifies not only the bank name, but also the country, city and branch.

Swift is the way the world moves value and was founded to find a better way for the global financial community to move value in a reliable, safe and secure way that can be completely trusted, reads the description on its website.

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What does it have to do with Russia? Russia is a member of Swift, and according to Zoltan Pozsar, strategist at Credit Suisse Group AG, the decision to exclude several Russian lenders from this key financial messaging system could lead to missed payments and massive overdrafts in the international banking system, as well as encouragement of monetary authorities to reactivate day-to-day operations to supply the market with dollars.

“Swift exclusions will lead to missed payments and massive overdrafts similar to the missed payments and massive overdrafts we saw in March 2020,” Pozsar wrote in a note. “The current excess reserves and facilities for reverse repurchase agreements will not be sufficient and monetary authorities will have to intervene.”

According to the Russian National Swift Association, Rosswift, Russia is the second largest country after the United States in terms of number of users and about 300 Russian financial institutions are members, more than half of which are in the country.

If Russian banks are removed from Swift, they will not be able to make or receive payments with or from foreign financial institutions in commercial transactions.

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