SWIFT, commonly known as the Society for Worldwide Interbank Financial Telecommunication, represents one of the world’s biggest financial networks, as it allows financial institutions throughout the world to send and receive money alongside data on financial transactions, via a reliable and standardized environment. It represents the system used by most of the world’s banks for sending and receiving money, yet it has often threatened to withdraw from Russia given economic sanctions.
As a response, back in 2014, Russia has begun developing its very own Financial Communications Transfer System (SPFS) that it would use in case of a SWIFT withdrawal. While the SPFS is currently an alternative system, a total of 585 Russian banks use it as a standard, whereas others keep it in reserve in case SWIFT ends up being withdrawn from the country.
Now, recent reports indicate that Russia has continued developing the system, and that it has recently decided to switch it to blockchain technology. It has been stated that at this time, the transaction costs of the Russian system are considerably lower when compared to the SWIFT standard. Additionally, the system has reportedly been extended in order to accommodate covering all countries situated in the European Economic Area (EEA).
Some of the main benefits associated with the SWIFT switch include lower transaction costs, better protection in case of security attacks, stronger data management protocols, more financial tools, and better speed.
Theoretically, a blockchain-based financial network that would serve a purpose similar to SWIFT would be safer. After all, SWIFT has faced a couple of security attacks in the past, some of which led to massive sums of money being lost. For instance, in February 2018, $6 million were stolen from a Russian bank, whereas a hack involving SWIFT made the Bangladesh Central Bank lose a total of $101 million in 2015.
In the grander scheme of things, having one of the world’s biggest powers switch to a blockchain-based financial system for sending and receiving funds between banks and other financial institutions, is definitely a step in the right direction for blockchain technology advocates. However, the system is only expected to go live in case of a SWIFT network withdraw from Russia, as otherwise, introducing SPFS as a new standard would surely be an expensive endeavour.
Based on everything that has been outlined so far, what are your thoughts on Russia experimenting with blockchain technology for their SWIFT financial network alternative?