I guess if I was super cool I would do an AMA because this is the only thread that is really my time to shine hahaha.
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?
This is a comment that's not related to SWIFT in particular.
Every asset (including money) is generally someone else's liability. The money that we hold as an asset is the liability of a bank. Anyone can issue their own liabilities, but you can't create money that's a liability of someone else. For example, I can't go to my bank and tell them I have a million dollars more in my deposit account than I actually do. They're keeping track on their end.
Similarly, a bank can't pretend that it has more reserve deposits at the Fed than it really does. The Fed keeps track of everybody's reserve accounts on their end.
> Furthermore, does the system guarantee that the central banks of each country are correctly adjusting their books in consequence?
This isn't an issue. The books of central banks don't need to adjust when other banks issue money (i.e deposits).
You can’t really know for sure if it’s worth it now though.
It’s simply that the liabilities are held by people who aren’t born or are obsfucated to the point that people don’t realize they are holding them. Inflation is one example
Through a series of regulations regarding minimum liquidity/capital [1] and/or reserve [2] requirements.
> Furthermore, does the system guarantee that the central banks of each country are correctly adjusting their books in consequence?
By requiring them to periodically report on their assets and liabilities, checking for compliance with [1] and [2], and monitoring their reserve accounts.
We have to trust that all the governments of the world, who pinky promised to follow the rules, aren't secretly cheating internally and reporting false numbers to everyone else?
I really hope crypto maximalists have made it this deep into the thread.
This is also why cryptocurrencies can never be made efficient, and will be a blight for as long as they exist. They are the logical extreme of the inefficiencies imposed by a low-trust society[0].
[0] https://en.wikipedia.org/wiki/High_trust_and_low_trust_socie...
Since cryptocurrency was already mentioned recent examples of that can be seen in Ukraine. The traditional financial system there has been disrupted; you can’t get cash out of an ATM. If you have cryptocurrency you can still transact. I think I saw something earlier where a journalist was able to get out of the country by using crypto to buy a used car.
Sometimes inefficiencies are still worth it, especially when dealing with worst case scenarios. Just-in-time manufacturing and global supply chains are very efficient, but when they are disrupted the cost is enormous. Winterizing the energy grid in Texas is expensive and inefficient/expensive, but if they don’t you are accepting that people will freeze in a severe winter storm.
>It seems to me like all societies are trending towards low trust.
is quite a starting point to make the rest of your points.
Your example of Ukraine is insightful and valid, but I imagine crypto fans and opponents alike would rather we not descend globally into a state of permanent war, where crypto would presumably be the only tool available to transact.
I think he's being a realist.
https://thehill.com/blogs/blog-briefing-room/news/590117-tru...
i think this low-trust is actually a root cause of many problems in society.
Please cite your sources.
edit for people finding this later: Visa and MasterCard do on the order of one billion transactions per day combined. As far as I can tell, Ethereum (proof of work as of today) does about a million per day and Avalance (one of the top 3 proof of stake networks according to Wikipedia) does about a million per day. That's literally one thousand times fewer transactions than the top two card networks. Three orders of magnitude.
If we would like to pick nits, we could say that the Visa transactions are not comparable to the Solana transactions because Solana transactions let users run complex programs that Visa does not, or that Solana transactions are not comparable to Visa transactions because nobody accepts SPL USDC and everyone pays out the nose to accept Visa, or that 2700 is a lot less than 6500, or that the 6500 number is misleading because the load should have peaks, and do we really know how much peak load Solana can handle, or that only about 1/3 of the Solana transactions are actual useful stuff for users and the rest are consensus messages. But my point is that these things are only "too slow compared to Visa" by a reasonably small factor now, like 6500 vs 900. Thanks.
0: https://usa.visa.com/dam/VCOM/global/about-visa/documents/ab...
But it's been proven to be technically feasible to replace OldFi with blockchain, at least in terms of TPS.
2. You’re citing avalanche numbers that are not at peak traffic
3. Avalanche is not far from being the fastest crypto
Not a native English speaker, so I may miss some nuances, but can you explain how you do not need trust that you find tomorrow someone fool enough to give you something valuable against your token? Where else does the "store of value" come than trust that there are greater fools tomorrow?
Only if you can't do that do you start to trust and build off it.
This scientific process of embedded mutual distrust is one of the most successful, generative, and important institutions humanity has ever created.
But most scientists trust the peer review process and base their work on their own ideas and the ideas/results they read in journals.
In short, scientists trust other scientists.
We really don't. There's so much stupid stuff that gets published on the daily.
And then, you publish a paper refuting a lot of the nonsense, and people start citing your paper as evidence of the opposite of what you wrote, just because you had a keyword in your abstract and they didn't read it, just needed a citation. It's mind boggling that we aren't going backwards in science.
Did you (or your lab members) publish contradictory results, or should I just trust this assessment?
But it is critically important that we can periodically check in and verify that our trust is still well placed, and not have systems that can allow someone to massively profit from violating people's trust.
The stronger those foundations and verifications of trust are, the better off we all are as a society.
I never suggested that every scientist independently and recursively verify every piece of previous work. Work and verification of work builds on each other. And every once in a while, we have a major milestone that verifies that much of the work that went into accomplishing the milestone (such as the moon landing) is generally correct.
That's how we teach science to people. It's not just "here's the math and the science we know and it's totally right, just trust us bro". We say "here's the math and science we think is right, now let's do experiments along the way to periodically verify that the things we're teaching you actually generate real predictions that match reality".
Science is all about being suspicious and verifying. Many (if not all) of the greatest scientific discoveries came from people questioning the established "truth".
Right- that's called trust. I can't independently launch my own lunar program, so I trust those that did... did.
That is the “optimistic” Popperian take on science—aka good science. The reality is a different matter ;-)
Money means nothing without trust.
I do not think we can have civilisation without trust
Plenty of other moneys come into existence emergently, most obviously gold and silver without any authority mandating their use. Money is an emergent property of human society, not a gift handed down by our divinely established kings.
The idea that money can only exist by government decree is patently absurd.
It’s true that lots of money exists outside of government decree but equating any commodity to be money redefines the term.
Money is whatever thing human society decides to collectively value in order to more easily trade goods and services across time and space.
Money has been and continues to be many things, from government decreed currencies, to gold and silver, to cigarettes in prisons, to sacks of salt paid to Roman soldiers (etymology of 'salary'), to the colloquial "I owe you one".
Money is just debt and favors and can take an infinite number of forms depending on the environment and needs of the people using it to more efficiently collaborate.
If I give Paul a loaf of bread and in exchange he writes "Paul owes you one" on a piece of paper, that's money. I can trade that with someone else for some good or service and we'll have to haggle over how much "one" favor from Paul is actually worth.
The dollar is just "the US government owes you one". How much is "one" worth? That's for the market to decide, and largely depends on how much real world goods and services there actually are along with how many "ones" the US government has issued. Although, before 1971, it was explicitly defined as "for every 35 'ones' you have, the US government owes you 1 oz of gold". Now, the value of "one" floats in the market and is constantly devalued by design.
In recent days, the world's markets have decided that "the Russian government owes you one" isn't worth nearly as much as it did last week.
Commodity money like gold or bitcoin don't rely on trust in a government's ability to pay it's debt, but rather trust that a sufficient number of people will always desire the commodity for whatever reason. That's still debt, but more a more indirect, coercion free form of debt.
For gold, that reason is because it has a long history of established scarcity and has some utility as jewelry to signal wealth to others.
For bitcoin, that reason is because it has theoretic perfect scarcity, can be instantly transferred to anyone on the planet with a phone, can be stored in your brain by memorizing the dozen words of your seed phrase, and many other fascinating programmable properties that have yet to be fully explored.
Money is a) fungible, 2 units of the same money are worth the same thing and b) general applicability. You can use money as a medium of exchange most places.
Brent crude futures contracts are fungible at the monthly contract value. I can literally swap 2 same month contracts with no change in count. I can’t buy coffee with them though (or even Brent crude oil without a lot of toil).
MasterCard debt is generally applicable. It’s spendable all over the world, but I can’t trade it for Amex debt without a conversion.
That makes money status contextual but not undefinable. Rubles are not usable where I live. That means they aren’t money here, I have to fx them, but they are money somewhere else, even places where the government says they are not, like Brighton Beach.
Long story short, you must have external validation of value for something to be money.
It's a bad term and I fight it everywhere I can.
> The idea that money can only exist by government decree is patently absurd.
No one put forth that idea here. I'm just saying that the idea that there is a non-arbitrary currency is equally absurd.
Shell money predates coinage and works a lot more like fiat money.
Same goes for countries. If a countries fed just creates new money out of no where and acts as if it’s always existed they risk everything. I.e. losing access to the global banking network, insane currency fluctuations, use your imagination.
The premise is the same though. Our entire financial system as it stands today is based off of trust with auditing oversight and harsh penalties for breaking that trust.
Basel III was agreed upon by the members of the Basel Committee on Banking Supervision in November 2010, and was scheduled to be introduced from 2013 until 2015; however, implementation was extended repeatedly to 1 January 2022 and then again until 1 January 2023, in the wake of the Covid-19 pandemic.
> Further, your response to a question about a guarantee is regulation and reports? How does anyone know the reports of another central bank are true? When a central bank fakes numbers, what are the consequences, if any, and who adjudicates them?
Money, especially fiat money, is a social construct. The conformance with and violation of it is therefore within the domains of law and politics.
> How does anyone know the reports of another central bank are true?
Monetary theory is not my expertise, but I'm curious how a central bank report can even be "false" (assuming it is issuing fiat currency and isn't falsely claiming to be backed by foreign reserves or commodities, for example).
they issued money to institutions or individuals, but pretended that they didn't in the reports, thus creating untraceable money without oversight.
Simple answer is balanced books. Longer answer is public reporting and reconciliation.
If a bank shows its Federal Reserve balance at X on its asset side and the Federal Reserve shows its bank balance at 0.9X on its liability side, that will raise issue on reconciliation. The system lazily evaluates, however, which makes it nimble but also corruptible--if that bank never tries to spend that money, it may not come to light until audit.
Seriously I have wondered about this for decades. I don't know why this would be obvious to anyone.
Approximately. Everyone keeps a running total of their bilateral transactions. This summing and sharding reduces information. But it also decentralizes accountability in a robust way.
Add occasional audits (which allow trusted persons to evaluate the transaction record), and some of those parties' books (in the aggregate) being public record, thereby permitting every party (including third parties) to compare their books to theirs, and you get a system which tends towards accuracy.
EDIT: apparently they use some old XML protocol, where twice a day a correspondant bank send them a list of accounts to debit or credit. They didn’t send something once, so my friend’s bank just replayed the previous settlement list.
Can we have a simple "for dummies" answer that explains how does the system guarantee that nobody's creating money without notifying everyone in practice?
Is there some kind of a public ledger? Do banks automatically broadcast their money creation operation to other banks?
Since SWIFT is not the only, but certainly the largest financial/interbank messaging network, I suppose the effects are similar, but "disabling SWIFT" to me always sounds like an implementation detail.
I don't think anyone would arbitrarily just ban all trade like that. And if that's what they did intend, that's what they would say and the consequences are much bigger.
It's kind of a 'de facto' ban however, in that, it's hard to pay people otherwise.
I'm sure a Swiss bank or two could immediately broker transactions 'by hand' though, that would be a pretty easy way around things.
That said, you could be right. If that's the case, I wish they would make it more clear.
Disconnect Russian banks from SWIFT? OK, submit your SWIFT formatted messages to banks via this helpful REST API instead. The outcome is the same.
Russian Oligarchs have their massive yachts in ports in Europe. They are talking about 'no safe haven' but it's BS.
If they want to do something, they can go after those ships. That said, many of them hold dual citizenship which makes legal problems.
Also, the corrupt oligarchs serve as a conduit for money fuelling out of Russia to the West, I mean, they are kind of doing the West a favour to Russia's detriment.
Europeans need to come together right now and pledge to absolve themselves of Russian Oil. It means major investment in Nuclear.
Germany also has to start assuming responsibilities of leadership. They are benefiting the most from the Euro, and frankly European integration as they are sucking jobs and talented workers in form Spain, Italy etc. they have to share the burden of things like military leadership.
Poland right now is supporting Ukraine in all sorts of ways, it's amazing to see, and they are not a rich country.
Unlike the wave of migrants in 2015, these neighbouring refugees are being welcomed.
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.
Look into correspondent banking if you're curious how all of that works – SWIFT is just one (very popular) way correspondent banks can communicate with each other and/or look up paths to facilitate international payments for their account holders.
I always wondered about the security behind it, because it seemed like anything that hit our inbox that was a tiff and have a recognizable letterhead got acted on, no confirmations, 9-10 digit amounts were moving around based on that alone. Also Not sure that I saw the whole system or just a piece.
But just like the messaging layer, this can be done via other means. For example, here [2] is Citibank Poland declaring their reachability for various currency transfers.
As for the messaging service itself, I believe that cutting off SWIFT SSI access would help in disrupting payment flows in the short term, but in the long term, sanction lists are the real enforcement mechanism.
As others in this thread have already said, these are a very powerful indirect stick when implemented as "you must adhere to our embargo lists, or we will prohibit all of the banks in our jurisdiction to do any kind of business with you, whether for embargoed clients or others".
[1] https://www.swift.com/our-solutions/compliance-and-shared-se... [2] https://www.citibank.pl/poland/corporate/polish/files/list_o...
You generally need to be a bank or regulated financial institution.
SWIFT is just a messaging layer for correspondent banking. If you're not a bank, SWIFT access is about as useful as suddenly learning your country's president's cell phone number: Definitely cool, but the two of you would probably not have much to talk about.
When something really screwed up you resorted to sending MT599 messages around, free format text messages.
I believe it's all SWIFT over IP this century so probably not dissimilar to any other API you might use.
I.e. if you go and create a neobank through a baas provider you will inadvertently get access to SWIFT, it won’t be direct but you have access.
To get true access you have to go through and insane process and have a ton of controls and policies and create trust with the governing body of SWIFT.
I've been banned from one bank. I have friends who are sex workers who are partially debunked (sex work is legal in Australia, but PayPal doesn't care).
The truckers in Canada are also finding it out the hard way.
Are these edge cases? Perhaps. But they seriously affect the lives of people.
If millions of Russians suddenly find themselves without access to the international financial network, I have a feeling a lot less people will think "bitcoin has no value".
Also. at a level above "money" what do the ultra wealthy (Rothschild, Rockefeller, etc) deal in as currency at their level. I believe they have another currency. These families have FAR greater wealth than Bezos and Zuck (Bill Gates is essentially family to the Rothschilds. through his father/grandfather)
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.