A quick breakdown of what SWIFT is and why it matters

Could you explain this to me like I am a complete moron? I understand that SWIFT allows for international payments, but I don't understand exactly how it differs from a normal bank account transfer within the same country.

How does the system guarantee that nobody's creating money without notifying everyone? Furthermore, does the system guarantee that the central banks of each country are correctly adjusting their books in consequence? Is it all just a trust-based system, or are there additional controls?

So how does this stack up when the CIA are purportedly printing their own currency? Or are the CIA and others exploiting the lack of security measures built into cash? https://en.wikipedia.org/wiki/Superdollar#CIA

My understanding of money creation aka FIAT currency is banks/lenders deposit a small % with the central bank and can then create circa 90%+ of money out of thin air when someone takes on a loan. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

https://www.economicsnetwork.ac.uk/archive/starkey_banking#:....

With this being the case, then borrowing money not only demonstrates banks have more intelligence on people in order to decide whether to lend money or not, but it also benefits some in society more than others when considering credit rating agencies.

Edit: In other words, the amount of debt someone can take on is a sign of good behaviour and nothing more, a variation of monkeys being taught the concept of money and then scientists witnessing how monkeys traded their tokens, notably, females got cash for sex, males got cash for stuff the female wanted. Basic.

When people talk about the manual inefficiencies of finance, it's referring to all this happening in the backend behind the abstraction of quick/automated digital payments in fiat currency. It gets especially complex in international finance, hence SWIFT etc.

The Bank of England published a summary of how modern banks work. See https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

> It can't be just a number on a computer in a bank, right?

It can and it is, see the BOE paper.

> So I guess USD needs to be recognized by the US somehow?

This is a complicated question that will start a flamewar, but basically, any bank in the world can create dollars out of thin air given adequate collateral. Read about "Eurodollars".

Money is an IOU from the bank. So that's what all banks do. But they'll need assets on the right side of their balance sheet.

Which does make one wonder how easy it'd be for your trick to work.

North Korea is a major printer of fake $100 bills, a piece of paper that's actually worthless but others are willing to trade $100 worth of goods and services, or exchange for a bank transfer. Until a bill is found to be fake and destroyed, I guess there really is $100 more in circulation, and when the last person found out the note is fake, in effect NK has robbed them out of $100.

The "single source of truth" is the Federal Reserve. Member banks (about 10,000 US domestic banks) can hold reserves directly at the Fed. Any reserve bank can directly transfer Fed reserves to another member bank or to the US Treasury using FedWire. The Fed "creates money" simply by crediting a member bank's reserve.

This is done in two ways, one is by paying interest on reserves. So if you're a member bank holding one million in reserves, the Fed simply bumps your balance up every night to reflect your interest payments. The other is by the Fed conducting "open market operations". When it wants to stimulate the economy by "providing liquidity" the NY Federal Reserve trading desk will buy treasury bonds and pay for them simply by crediting the balance of whichever member bank sold the bonds.

Member banks themselves can "create money" in the form of demand deposits. If you have one million in your checking account at Chase bank, all you really have is a promise by Chase bank to give you or whoever you want to send money to one million dollars. Essentially money is created the same way the Fed creates money, your checking account is nothing more than a credit in Chase's database.

However Chase's ability to create money is highly regulated and constrained. Banks have to conform to strict capital and leverage constraints. The OCC and other banking regulators will require that Chase hold enough assets in high enough quality to cover its deposit "liabilities". Some fraction of those assets will be dollars held as reserves at the Fed. Some will be bonds or loans, i.e. promises by other high-quality actors to pay dollars. Some of those assets could even be risky stocks, low quality bonds, commodities, etc. However the "risk-weighted" leverage ratio quickly scales up with risk.

In exchange for this regulation, deposits held at Chase or other member banks are treated as equivalent to Federal reserve dollars. That's because if for some reason, Chase is unable to pay back its depositors when they demand their money back, the Federal Reserve will "create money" to meet the obligations. This is essentially why bank runs no longer exist in modern banking.

Then there's the concept of "money markets", which is short-duration, high-quality assets that are essentially treated as "money-like". Often this tends to be short-term commercial paper from high-quality corporate issuers. A promise from Apple to pay $1.00 in 30 days is treated as "almost a dollar" by most of the market. In this sense, Apple can also "create money". But it's highly constrained, because it would quickly lose its credit rating or breach covenants in its longer-term bonds if it did so.

Finally there's the concepts of "eurodollar deposits". These are dollar deposits held at non-American banks but denominated in dollars. For example you could hold $1 million dollars at Mitsubishi bank in Japan, and you have a claim against Mitsubishi to pay out dollars whenever you want. Mitsubishi is not an American bank, and therefore is not directly regulated or insured by the Federal reserve. In some sense this makes eurodollars slightly less safe than dollars held at domestic member banks.

That being said Mitsubishi is regulated by Japanese banking regulations and implicitly insured by the BOJ (central bank of Japan). Mitsubishi will also make sure its dollar liabilities are never that large relative to its yen-assets. In the case of Mitsubishi failing, its highly likely the BOJ would bail them out by creating yen in the same way the Fed creates dollars. Some of that yen could be converted to dollars on the open FX market, and make the dollar depositors whole. Hence eurodollars are essentially just as safe as regular dollars as long as they're inside another high-quality banking system.

It really is, but to answer your second question, it's important to consider *which* bank. There's reserves (i.e. balances of banks at the Federal Reserve) and bank deposits (which really are just numbers in banks' databases).

Having an account at the former is effectively what makes numbers in the database of the latter "real USD".

> Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD. Now let's go shopping.".

They could, but these assets/liabilities would not be backed by any reserves linked to the USD payment rails.

Reserves are theoretically irrelevant (though practically regulated) as far as transfers between accounts of a single bank are concerned. But as soon as a second bank comes into the picture, i.e. for inter-bank transfers communicated via SWIFT or otherwise, all transfers will ultimately be backed by Fed account to Fed account transfers in the background.

> So I guess USD needs to be recognized by the US somehow?

Indirectly so, yes: What makes USD "real" is the ability to transact with the larger ecosystem of US and offshore banks that have a shared agreement on what "real" USD are.

Practically, this means being connected either directly (via a Fed account) or indirectly (via a bank that itself does have a Fed account) to that system.

> Could the US simply "void" all USD that are owned by Russia?

Indirectly, yes: They can force every bank holding USD balances for embargoed beneficiaries to freeze these assets. Failing to comply could, in the absolute worst case, lead to that bank's Fed accounts being frozen as well (which would take away its ability to settle in USD with other banks).

Your internal balances are only good so long as the rest of the system trusts you. Magic up some fake balances and good luck getting the rest of the world to continue to take you seriously. "You want us to believe you've actually got that 100 Trillion? Show us?" How would this Russian bank spend these trillions? They can't cash out, because they don't actually have that much paper USD. Transfer it to another bank somewhere more reputable? How are you going to make those transfers clear?

I invite you to open your own bank and print yourself ten million dollars out of the air. Good luck converting that number to cash or transferring it to anywhere else!

You could start here: https://www.federalreserve.gov/releases/h41/20220224/

H.4.1 is a really useful and important data set. For example, you can see that US Fed is holding T2.7$ worth of mortgage backed securities i.e., it's funding them.

> Could the US simply "void" all USD that are owned by Russia?

Beyond a certain threshold those USDs are typically stored as US Treasury bills because it's too risky to deposit billions of $$ in bank accounts. The risk of bank going under is real at those deposit levels.

For anything more I highly recommend reading up Fed Guy blog [1]. It's one of the best sources of this information I've come across; he's extremely concise, no-jargon and explains the core principles really well.

While at it, take a look at this BIS data[2]. tl;dr Russian residents owe ~B121$ to other countries' banks.

[1] https://fedguy.com

[2] https://stats.bis.org/statx/srs/table/b4?c=RU

In a computer account. Here's a 22-second clip[0] from a 60-Minutes interview with a former chair of the Federal Reserve talking about how money is lent to banks. Literally just numbers on a computer.

"...We simply use the computer to mark up the size of the account that they have..."

[0]: https://www.youtube.com/watch?v=hiCs_YHlKSI

The key feature of this system (and what everyone is ignoring) is bank accounts that x/German bank has at y/Russia bank (this is also the actual means of transaction for SWIFT).

So in your example, 'y bank erroneously says we have $100tn' would actually just mean 'y bank is willing to credit the account of x bank by $100tn.'

If x bank then tried to pay y bank for a separate transaction with those fake $, then y bank is the loser anyway.

EDIT: Put alternatively, 'making up' USD is a near equivalent to making a loan, which is sort of the core thing a bank does anyway.

And yet people question the utility of a decentralized, trustless, public ledger -- ie. blockchain.

The US sanctions (freezing their US assets) has more effect, in that regard, than a SWIFT blockade. The US seems to be the interested party in this war, and Germany is much less enthusiastic about it. Remember, SWIFT is a Belgium company and the US has been hostile to European financial institutions lately.

Here’s a good example: when you borrow $500,000 from the bank, the bank’s funds don’t go down by $500,000. The bank just creates that money out of thin air, by adding to the number in your bank balance. Eventually that number goes down as you repay the loan, so it all washes out in the end (modulo interest, defaults, etc).

As an aside, that’s why low interest rates stimulate the economy: more loans are made, and more money is created, spurring more economic activity.

Yeah, they can, and do. This is what Eurodollars are. And why the World is continually on the brink of financial collapse whenever Dollars get too scarce.

It's a distributed shared ledger.

If this hypothetical Russian bank attempts to add fraud to the ledger, it will cause a fork.

A bank could easily create fake money into its own accounts, but it would have trouble transferring that money over to other banks. I wrote extensively about this topic here: https://www.attejuvonen.fi/money-out-of-thin-air/

To fake money you need to forge transaction with input from somewhere, this can be checked.

Slightly related, I'd have to find it again, but I recall there was at some point an assembly level hack on some Oracle database holding core banking in one country.

It's two numbers in computers. It's a number in the computer of the bank that issued the money, and it's a corresponding number in the computer of whoever is holding that money as an asset.

> Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD. Now let's go shopping."

It's not possible for a Russian bank to pretend they're holding more USD assets than they really are. The issuing bank knows how much USD is in Russian bank's deposit account. The Russian bank can issue its own USD liabilities (i.e. deposits) which are IOUs for the USD reserves that the bank holds on the asset side of its balance sheet. If the bank issues too many USD liabilities, they risk suffering a bank run that drains their USD reserves and puts them out of business.

> So I guess USD needs to be recognized by the US somehow?

Not exactly. It's possible to have a USD-denominated deposit account at a bank that h deposits at banks in the US. Most of the USD-denominated instruments in the world are not directly recognized by the US. But the international monetary system is hierarchical. Every USD instrument is an IOU for another USD instrument. If you follow the chain of IOUs, eventually, you'll get to the Fed.

The replacement is already functional.

In fact, Russia is not the only one having built a replacement to protect against the risk that SWIFT would be sanctioned: Europe has done it too with Instex: https://instex-europe.com/about-us/

SWIFT is a private company; those sanctions make it less competitive, and it is hard to play whack-a-mole with a worldwide market.

SWIFT, to be fair, is very convenient because of its standards and high connectivity. But if SWIFT was sanctioned today, banks can use literally any mechanism to route funds, from SPFS to email. What matters is the recursive existence of accounts held at banks that have accounts held at banks.

SWIFT sanctions are kind of blunt given that we're now living in a world where any major power can write some software. And in this case both China and India offer alternatives.

If American banks charge for them it's most likely because they can. It's standard practice in retail banking to offer commonly used things cheaply and then earn back the cost by charging loads for anything unusual.

As for how it actually works, in the European Bank I worked at we debited the account and then put the transfer in a batch file and sent it to the central bank which processed them every few hours. If the transaction failed for unknown reasons, someone would, I think manually review it.

There's a BRICS bank though.

> On 17 December 2012, the Pope received a report on "Vatican lobbies" ... . The same day, the Pope reportedly decided to resign, a decision he made public in February 2013

It's possible that multiple factors added up to make the job too overwhelming for one man of his age, but the "vatileaks" scandal appears to be far more significant in coverage from what I can see.

Like any other sanctions: the government says “If you do X, don't do it with any Russian bank. If you do, people with guns will come, throw you personally in jail, and impose financial penalties on your business.”

And then transactions from Russian banks to banks in countries with that kind of sanctions suddenly have a very high rate of falling into the bit bucket without having any business effect.

Russia has elections, but even having an unelected autocrat doesn't mean that governments are immune to popular opinion.

Ask Louis XVI of France or, perhaps more relevantly here, Tsar Nicholas II of all the Russias.

The lesson here is that every country should learn to defend itself.

If the West really cared Swift would have happened long ago.

The reality is they do not care for Ukraine.

1: https://twitter.com/Cernovich/status/1496917092351692810

Here a staggering number of people die every winter due to not being able to afford heating[0] (something like 30-50k). I think it's not quite so bad in other EU countries but some (like Germany) are still extremely reliant on Russia for energy. Due to strategic shortsightedness, cutting off oil and gas exports is simply not an option.

[0]: https://www.theguardian.com/commentisfree/2020/feb/27/dying-...

The potential for bad consequences for Russia in the months ahead depends to a large degree on how China reacts.

In that moment, it really clicked for me how much normal people are pawns to be used in much larger games. And there apparently is no morality when dealing with pawns, unless it is convenient.

Not to sound disrespectful, but I think it's the Ukrainian citizens who perished or will perish who "will be hit hardest".

I know you have no personal choice in the matter, but still important to keep in mind the ongoing suffering.

People will be “cheaper” buy. Votes will be cheaper. It only helps consolidate the wealth in the target country and makes the massez more reliant on large institutions and wealthy individuals.

I wish you best of luck in dealing with things to coms brother.

To read, you can always use ThreadReader. Just pop the Tweet's URL in there:

https://threadreaderapp.com/thread/1496861068945154056.html

He's the genesis of the Magnitsky Act -- the one thing that actually scares Putin. I know this because Putin even said if Russia was removed from Swift he would consider it an act of war.

https://twitter.com/Billbrowder/status/1496799227082649603

This is only true to the extent that the US unilaterally imposes sanctions. The proposed sanctions involving SWIFT are multilateral, with the support of the entire EU. That's around double the economic power of the US alone, and roughly half of the entire world's GDP. Being sanctioned by half of the global economy (more, if Asian democracies participate) is very punishing indeed.

This same situation happened with Iran and it torpedoed their economy.

I mean, I suspect we agree that the embargo should be lifted, but that's a really poor way of saying "communist dictatorship with a penchant for, among other things, lining up homosexuals against a wall and shooting them".

Hopefully the last few days have reinforced that even if one country does things wrong sometimes, it doesn't mean the other side is a good guy.

Earlier today a report on BBC said existing sanctions on Russian already made their economy suffer to a significant extent. I forgot the percentage points they mentioned but it was surprisingly high. Applying even more sanctions will unfortunately hurt the Russian people the most and the discontent that will create among the people over the many years to come should not be underestimated.

I don't see how this follows from your (correct) description of US influence in the cold war. Soft power works now the same way it always has, all it requires is coordination on a "pool of influence" large enough. It's absolutely true that the US can't unilaterally do what it did in the 70's. But the e.g. USA+EU+Japan+Korea? That's pretty dominant, still.

Russia's only out from something like that would effectively mean becoming a sattelite state to the PRC. And... maybe that's where we're headed. But it's surely not where Putin wants to head, so it remains leverage.

This is just straight up wrong. This is why the Magnitsky Act got Putin so rattled. It is also why Putin has said being cut off from swift is an act of war. If it's meaningless, why does Russia care so much?

In this case, though, one wants to apply pressure not on the country, but on the surrounding oligarchs. When a nation is, essentially, a syndicate of organized criminal oligarchs around a strongman, financial pressure on those people is exactly what you need.

For authoring: https://threadstart.io/

but I’m sure there are more

https://news.ycombinator.com/newsguidelines.html

2. It's actually much harder than convincing 51% of miners that Russia is bad. You'll need to get them to agree on a list of addresses to freeze/sanction. Given that bitcoin addresses are pseudonymous, I'd imagine on agreeing on such a list would be politically impossible. Not to mention, how such action would affect trust in the network and the value of bitcoin

There are protocols that work around address banning

If you are pro-SWIFT-exclusion-of-Russia and live in Germany please contact your national representatives and let them know you're willing to bear some hardship so others don't have to.

It would be even possible to trade a fleet of AMGs for a week of oil if need be. Removing SWIFT would only delay trade between Russia and Germany not hinder it in anyway.

In fact bartering system would produce more efficiencies, a bullet proof AMG G-wagon for instance would fetch more oil than a regular C-class offered to Putin's low ranking officers!

All in all, Ukraine gains nothing from this action, it would only give Putin the political ammunition to sell the narrative that Russia is under attack.

The US certainly stands to gain everything and risk nothing in this region and its puzzling to me why Ukraine would choose this as a hill to die on as if their self sacrifice would move the hearts and minds of NATO officers on some emotional basis

Blocking SWIFT for Russia would be a very, very, very stupid idea because it would precipitate the collapse of the U.S. Dollar. Which, I'd bet, is intentional because the central banks want to push out CBDCs they control and populations are primed to support it willfully (in opposition to Bitcoin) thanks to several years of anti-Russia propaganda. It's a perfect mousetrap.

All Russia has to do is tell European countries reliant on its energy exports that they'll only be accepting Bitcoin moving forward. This would force those countries to scramble to get Bitcoin (if they don't have it already), forcing the price up rapidly.

What the fuck? I'm pretty positive that the energy strategy of major western powers was not radically revamped in two years on the advice of a teenager. If anything, they're in this position because they pursued an opposite strategy to what ecologists advocate: reduce dependency on fossil fuels including Russian natural gas, and invest massively in renewables + nuclear to bridge the gap.

And yes, in the short term it will hurt us but in the longer term you are disarming the influence of a bad actor with the added benefit of incentivizing cleaner energy and perhaps more efficient means of transportation.

Between those two (in-effect) statements, first from Putin, second from Biden, was Russia's/Putin's invasion of Ukraine. No irony there, just cause and effect.