This story was originally published on Coopoint, Maison de la coopération du Montréal métropolitain’s (MC2M) flagship magazine. MC2M is a solidarity cooperative, and serves as a place of convergence and influence for cooperatives and socially driven organizations that work to serve their members, the community and the neighborhood communities.
By Brittanie Sullivan
And interview with Pascal Bédard, from HEC Montréal
The general public did not know much about the SWIFT system before the war in Ukraine. Even less the fact that it was a co-op! The Society for Worldwide Interbank Financial Telecommunication (SWIFT), established in 1993 in Belgium (its headquarters are in Brussels), was established as a communications platform to carry out secure international financial transactions. It is therefore not a payment system, but a communications platform.
When the war in Ukraine was started by Russian President Vladimir Putin, it was revealed to the general public that many Russian Banks were excluded from the SWIFT system. Overnight, Russian citizens could no longer use their credit cards outside Russia’s borders. Conversely, travelers staying in Tchaikovsky’s country could no longer use their credit card there. This exclusion also affects trade between Russia and the rest of the world.
In this context, Coopoint interviewed Pascal Bédard, a lecturer in the Department of Applied Economics at HEC Montréal, to shed light on this world-class cooperative, a secure “social network” for financial institutions. For the past few years, an average of 42 million messages have passed through this platform daily.
Coopoint: What is SWIFT?
Pascal Bédard: SWIFT is an international secure transaction network, which has become the benchmark for transfers between financial institutions. Each of them is uniquely identified by this messaging system. This enables money transfers and transactions of financial assets between institutions. Everything is done in a safe and standardized manner and aims to make international transfers more efficient.
Coopoint: Why is SWIFT a cooperative?
Pascal Bédard: For its neutrality! It all started with financial institutions from European countries; the network then expanded to a global scale. The standardization has since attracted other members. By integrating the SWIFT system, it was no longer necessary to negotiate individual contracts. Moreover, it is also a cooperative in the sense that there is no profit envisaged with the SWIFT platform.
Coopoint: What enables its development?
Pascal Bédard:The cooperative now has more than 11,000 members [in over 200 countries and territories], all of whom pay membership fees to join. These contributions help finance the research and development of the network. The technology behind it is also very complex. It requires elaborate physical infrastructures and several specialized employees, such as programmer-analysts or managers. There are considerable costs which turn out to be relatively low when applied to the entire network.
Coopoint: How is security enforced?
Pascal Bédard:There is tight control of the 10 G10 central banks (Germany, Belgium, Canada, United States, France, Italy, Japan, Netherlands, United Kingdom, Sweden and Switzerland). The central banks of these countries supervise SWIFT because they have an interest in ensuring that the international interbank system works well and that it is particularly very secure and uncorrupted. Astronomical amounts are transferred using the SWIFT system. The latter must absolutely not be hacked!
Coopoint: Can financial institutions be sanctioned?
Pascal Bédard: G10 central banks can sanction financial institutions by removing them from the SWIFT system. These banks assess whether it is legitimate to punish certain members due to for example, the actions of their government. Note that countries are not expelled from SWIFT, since they are not the ones who are members. However, the economic impacts on a country can be enormous if its financial institutions, even just a few, go off the grid. When a country needs to import or even export resources and its financial institutions are kicked out of the SWIFT system, international payments become much more complicated. This is still possible, but this brings us back to the pre-SWIFT era, with much less sophisticated technology!
In the context of the Russian-Ukrainian war started in 2022, several Russian banks were excluded from the SWIFT platform. According to the European Union, this economic sanction targeted about 70% of Russia’s banking sector. Normally about 300 Russian banks use SWIFT. Germany, Canada, the European Union, the United States, France, Italy and the United Kingdom supported this important economic sanction.
The exclusion of SWIFT hurts Russia, because most of the payments made by global trade flows through this system, including the sale and purchase of natural resources or goods. However, Russia can replace SWIFT with other technologies, such as telephone, telex, email and even fax.