CEO and co-founder of Routefusion here, a cross-border bank to bank payment API. We use the SWIFT network regularly. I can 100% confirm that all money in the world is just literally numbers, and it is balanced by the different federal reserve systems around the world to ensure no one can "create" money without notifying everyone.
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.
>I can 100% confirm that all money in the world is just literally numbers, and it is balanced by the different federal reserve systems around the world to ensure no one can "create" money without notifying everyone.
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?
> How does the system guarantee that nobody's creating money without notifying everyone?
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).
To be more specific, central banks are allowed to create money. Their liability is /dev/null. It's how they added trillions to their balance sheet during COVID.
Not really their liability is basically the present value of the future which is indeterminate, not null. If the future pain is greater than the present value, or billions printed, then they printed too much, otherwise it was worth it.
You can’t really know for sure if it’s worth it now though.
Yes but my point is that the liability and asset paradigm described still will hold.
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
> How does the system guarantee that nobody's creating money without notifying everyone?
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?
Not sure what you mean, but I think that’s why crypto is so interesting: you have this public ledger that is auditable and where safety is maintained by consensus.
Any time a friend or relatives asks me to explain what cryptocurrency is, the trust aspect must be front and center, axiomatic to the entire ecosystem. There is not a single thing in the implementation that makes sense without first assuming a lack of trust amongst every single party.
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].
It seems to me like all societies are trending towards low trust. Technology that can work in a low trust environment though can alleviate some of the pain that comes with that though.
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.
I want to charitably assume that you're not being fatalist, but
>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.
First paragraph I follow, but how do you get to the point of the second paragraph? Cryptocurrencies are an update on the current system to remove some of that trust.
many PoS distributed slowish databases are currently deployed and process comparable transaction volume to credit card networks while emitting less carbon.
> process comparable transaction volume to credit card networks
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.
Visa's fact sheet[0] says that they processed about 6500 transactions per second on average for a recent 12-month period. A Solana dashboard[1] says that Solana processed about 2700 transactions per second on average for a recent period of a few hours.
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.
With lightning you can have infinite tx per day while having final settlement. In contrast Visa and Mastercard have delayed settlement and operate on many layers of trust
With lightning you can send many txes per day to people who already have as much bitcoin as you want to send them, have their wallet online as you send them the funds, and regularly check in to contest fraudulent channel closes.
> Yep! This is the fundamental "disruption" blockchain tech introduced. It doesn't require trust.
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?
Surely this can only be true if a blockchain based currency can replace fiat currency end-to-end. The moment any part of your economy is reliant on the exchange of (say) BTC back to fiat, all the attributes and constraints of fiat come back into play.
>But most scientists trust the peer review process
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.
Agreed. When I was doing science, we had a weekly lab meeting where one of our lab members would pick a piece of published literature in our field and break down how bullshit it was. It's hard to do good science.
Sure, trust is a shortcut we use to not do hard work, and free our time to do more useful things that constantly check on each other. That's fine.
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".
> 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.
Right- that's called trust. I can't independently launch my own lunar program, so I trust those that did... did.
"The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust." -- Satoshi Nakamoto
And yet countries have tamed his "anti-fiat" currency and make virtually all of the advantages of bitcoin useless. Bitcoin basically the walking dead right now.
Fiat currency here is obviously being used to refer to currencies created by government decree.
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.
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.
I think not quite just debt and favors. In my mind at least the key differentiator is that with money, I can take some money from Paul for some good or service, and expect to be able to get a similarly valuable good or service from basically anyone for that same money.
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 has lots of properties and you seem to be struggling to understand 2 fundamental ones.
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.
Yes, it’s all trust based. I.e. if some random bank in Iowa decides to just create $10,000,000 out of thin air, the Fed will eventually find out and then they would lose banking license, lots of penalties.
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.
It seems like the linked regulation is not yet implemented. 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?
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).
> How does the system guarantee that nobody's creating money without notifying everyone?
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.
So, the bank can't flip a few bits in its databases and go "actually I have a quadrillion dollars now" because other people know how much money that bank should have based on transactions it has made? Do I have that right?
Seriously I have wondered about this for decades. I don't know why this would be obvious to anyone.
> other people know how much money that bank should have based on transactions it has made?
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.
The system can’t do that. As a matter of fact I know someone who works for a French bank, and they fucked up and created a bunch of money. They had to work overnight with a bunch of accountants going through the books to make sure they reverted everything.
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.
I read the other responses to your question, and I feel like they're all using complicated language and are still ambiguous.
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?
Well the simple way to look at this is that usually when you transact with another bank, you're required to have an account at that bank. Just as a consumer can't magically change their balance, a bank simply can't magically increase their balance at other banks. To perform increased transactions, you have to send money to that bank.
What would keep some entity that has its SWIFT access revoked from switching to China's CIPS or even crypto? Would it be merely an inconvenience, requiring the change of a few processes, or would it create hard problems?
When people say "revoking somebody's SWIFT access", I think they really mean putting them on national or international sanction/embargo lists that prohibit them from doing any kind of business with them (in particular, sending payments in their name or for their benefit), rather than actually, technically removing their SWIFT network access.
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.
Yes. This whole thing is just once more revealing the cluelessness of our political classes. SWIFT is just a messaging system with verified identities, some schemas and a bit of business logic on the side. It exists because wire transfers predate the internet, not because it's clever or actually critical infrastructure.
Disconnect Russian banks from SWIFT? OK, submit your SWIFT formatted messages to banks via this helpful REST API instead. The outcome is the same.
The politicians know what it means. They need 'something' they can do publicly.
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.
It exists because banks need a way to know that money is coming to them, it more or less balances books. You are right, a Swiss bank could just call a Russian bank and say “hey we are sending you this money”, but A it would be a pain in the ass, and B, they could risk getting in trouble, but they are Swiss so they can do what they want hahaha.
The two systems aren’t mutually exclusive. You can be a SWIFT member or participant and also use CIPS or cryptocurrency, though I think switching to crypto for payments would create a ton of procedural issues for most financial institutions.
Fair, but if the US pulls the trigger on SWIFT censorship, that may not be completely destructive, and will only incentivize further expansion of the SPFS network to make the SWIFT attack less powerful next time.
In the short term, both. Longer term yes, many countries would migrate to other systems which mitigates the value of SWIFT. Fear of that happening is part of the reluctance to use it as a political weapon.
It would come down to people would not be able to send money to them, I.e. they would say you can’t send money to Russia anymore, and if an institution went around SWIFT to send money and they get audited they could get into a lot of trouble.
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.
When people say SWIFT, they usually mean "international payments via correspondent banking". SWIFT is just a messaging layer to enable that.
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.
When I worked for JP Morgan 08-10, I used swift and after learning about it on college was very disappointed. It was just an email inbox where other banks/fi’s scanned in orders, trades, etc. think fax2email where the fax came over as a TIFF file. There was no metadata, ocr, or anything, I’d have to manually read the image file to get the account number dollar amounts etc to key in on a piece of proprietary custodian software. This meant there was also no way to parse the inbox. Looking for a specific transaction? Ask them when they sent it and read the hundreds of messages that came over within +/-5 minutes and hope they remembered the time right.
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.
Not too familiar with that process, but as far as I understand, these routes (i.e. correspondent banks per currency/country and their reachability over settlement networks) are called "Standing Settlement Instructions". SWIFT does seem to offer these as a service [1].
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".
How does one connect to the SWIFT network? Say, someone wants to start a company for providing some financial service like fund transfer across borders, then connecting to SWIFT will be very helpful. I was always fascinated by how all this works and what does it take to directly use the SWIFT network. Any insights on this will be really helpful.
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.
I used SWIFT messages as part of my first real job (finance rather than tech). The format itself is comically loose, ill defined and fugly by any reasonable measure.
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.
You can go online to swift and apply. Large corporates can actually be members. We access the SWIFT network through a myriad of different banking and financial institutions we have created partnerships with.
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.
So am I right that SWIFT not only gives you a protocol that you can use to interop with other banks, but also some sort of DNS system that tells you how to send money to almost any other bank? This makes me think of the Bitcoin lightning network a bit as well. To reach bank Z, bank A needs to find a route of pairs of banks that can perform settlements, so there must be some sort of routing table to do that. That routing table is probably a service that swift provides and thus if they cut the russian banks from accessing this, they wouldn't be able to figure out how to reach other banks.
The beauty of bitcoin is I can compile a open source program, and my own hardware will verify that all the rules of the blockchain have been followed, and no one has spent any funds that they don't have the crypto keys for.
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".
I wouldn't call this consensus, as there is no global view and "total ordering" of transactions. Different parties have different views of who owns what, and extremely partial views at that.
I thought swift was just a protocol that banks used to talk to one another. If so how can it be used to cut russia? I’m guessing I’m missing a part where it is some centralized server somewhere?
I'm not sure I understand, how does "money show up"? Do you mean that bank A doesn't have an account at bank Z, so they must take another route A -> B -> Z, and thus at some point bank B might credit bank Z account and bank A needs to tell that to bank Z?
not until they can successfully, secretly, launder money and hide money in shell companies and other fraudulent activities that a very large portion of the money flow in the world relies on.
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)
> I can 100% confirm that all money in the world is just literally numbers, and it is balanced by the different federal reserve systems around the world to ensure no one can "create" money without notifying everyone.
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-...
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.
It can't be just a number on a computer in a bank, right? 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.".
So I guess USD needs to be recognized by the US somehow?
Could the US simply "void" all USD that are owned by Russia?
> It can't be just a number on a computer in a bank, right?
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).
I suppose what OP was arguing is, when bank A transfers to bank B, does bank B check with the Feds that the money from bank A is "real"?
And is a transfer from A to B really a transfer from A's account at the Feds to B's?
In that case, why would the US have to act "indirectly", threatening bank A not to work with bank B? They could simply deny any transfers to and from bank B's account at the Feds, which would make any transactions impossible?
> when bank A transfers to bank B, does bank B check with the Feds that the money from bank A is "real"?
Yes, unless the banks have mutual accounts with each other that they can use to settle instead. So, if bank B is accepting to be owed money by bank A for any transfer from A to B, they don't need to settle – but there's practical limits to that, imposed by both risk and regulatory concerns. Eventually, they'll need to settle up if funds flows A -> B and B -> A don't largely cancel each other out.
> And is a transfer from A to B really a transfer from A's account at the Feds to B's?
For wire transfers and ACH, it is.
> They could simply deny any transfers to and from bank B's account at the Feds, which would make any transactions impossible?
Yes – that's in fact exactly what a freeze of that bank's Fed reserves is!
> unless the banks have mutual accounts with each other that they can use to settle instead.
So this is just based on trust that the other bank will keep a truthful score of the transfer, and there won't be a dispute at settlement time?
If the banks are often willing to trade with each other "on trust alone" like that, I suppose that shows why the Feds can't always directly block dollar transfers, but have to rely on threats of account freezes.
> So this is just based on trust that the other bank will keep a truthful score of the transfer, and there won't be a dispute at settlement time?
Exactly: Either there is trust (and external settlement is not required), or there isn't, in which case banks will usually only credit incoming transfers to their customers once the underlying funds have settled.
Practically, trust is a spectrum, and banks might only settle once the outstanding balance in either direction has become too large (that's then called "netting").
> If the banks are often willing to trade with each other "on trust alone" like that
Bank balances are ultimately only be useful to their accountholders if they can effect some payment with them. There is therefore also a spectrum of fungibility of USD balances.
If you think about it, what makes USD useful is the fact that they can be used to pay for imports from the largest economy in the world. Only very few US companies would be willing to trade with you when being paid in USD balances at some foreign bank that they can't, as one significant example, pay their taxes with.
> 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).
They could also go much further. US has the power to force any bank that wants to transact in USD to freeze all Russian assets no matter the currency.
> US has the power to force any bank that wants to transact in USD to freeze all Russian assets no matter the currency
Ish. In reality, this power is constrained by our courts. Which is why we have the privilege. A foreign person wrongly frozen can take on the U.S. government in court and win.
You could equally say that in actual reality it's a matter of having enough men with guns. Occasionally the abstractions break down and that's where it all bottoms out.
In reality though if this happens and Europe / China doesn't like it (Europe literally needs Russia oil unless they want civil unrest with $300/barrel crude), compliance with US directives are not guaranteed.
The stick is real, it is very sharp and pointy; but it's a thin and targeted stick. Stab top many people with it, and it'll snap.
No. Swift is "just" a messaging system. No money is transferred over it.
Blocking Swift access makes it very inconvenient for banks to perform international settlement, because banks today rely on automated Swift messages to coordinate such transfers. However, even before Swift, international transfers were possible: by phone or telex. The banks have to find other ways to communicate, which isn't easy in practice, but not impossible. The fact that Russia has its own Swift competitor, to which some international banks might switch over time, would probably help with that.
But by freezing bank accounts at the Fed, the actual settlements - the events at which money actually changes hands - could be prevented in the first place, no matter the way in which banks agreed over those settlements. Switching back to good old telex (or another financial communication network) wouldn't help in such a scenario. Banks would have to fall back to exchanging big suitcases of dollar bills, which obviously wouldn't practically work.
Because no bank would survive this, they would immediately cooperate when confronted with such a threat and freeze any Russian-held funds, even if those funds weren't actually held in USD in the first place and thus would theoretically be unaffected by the Fed account freeze.
> Swift is "just" a messaging system. No money is transferred over it.
I don't really understand this distinction. But before I can ask a question, there are some points about my understanding of how payments work, so that you can verify me:
1. All payments, no matter which payment system, can be performed only between 2 bank accounts. In order to send or receive money I must have an account in a bank.
2. A bank is pretty much defined by regulations it must follow. Following these regulations gives a bank some amount of trust/authority to say that a given person/entity has that much money within this bank. This money don't necessarily have to be backed by anything, so, ultimately, "it's just a number".
3. All transfers in a given currency are directly or indirectly performed via central bank that emits this currency (or FRS in case of USD). This is the ultimate top-level ledger for transfers in this currency.
4. So, ultimately to transfer non-physical assets (i.e. fiat money) 2 authorities for a given currency (i.e. central banks, or banks that follow CB regulations) must communicate one to another that a given number is deducted from account X and added to an account Y. There's nothing more.
So, if money is just a number, "transferring" it is just a message. So why exactly SWIFT is a messaging system that doesn't transfer money, and how money is transferred, then? And what (in general terms) even are these messages SWIFT is needed for, that aren't money transfers?
If someone with an account at bank A transfers some funds to someone at bank B, this transfer can occur by bank A decreasing a number and bank B increasing it. That's "just a message". However, it also is only part of the story. The only reason why banks A and B are able to offer this nice service of increasing some number here and decreasing some other number there is that both of them have an account at a central bank, over which they can eventually settle this transfer (together with a lot of other transfers, of course) amongst each other. Otherwise, bank B would suddenly be in debt with bank A, which is a situation that both of them can only tolerate for a very limited amount of time (and money).
That's why I consider the capability to settle the individual transfers to be more important than the capability to negotiate these transfers, and the time of settlement to be the actual time at which wealth is transferred. Before that moment, the transfer is effectively incomplete, which usually doesn't matter much for smaller sums of money, but in case of large amounts that introduce large imbalances between banks you can be pretty sure the banks will want to settle among each other first before the recipient gets full access to the transferred money.
However, all of this is based on the assumption that Swift is used for inter-bank communication as in "non-central-bank to non-central-bank". I always assumed that central banks would have their own communication channels with the non-central-banks and would not have to use some intermediary like Swift, as they themselves are a central entity able to standardize message formats and such.
Yep – I suspect that when people say "block them from SWIFT", they really do mean "put them on international embargo lists and/or block anybody violating these at the various currency's settlement layers".
But as a short-term measure, revoking SWIFT access is probably also somewhat effective. As you say, setting up alternatives is not impossible, but not easy either.
With the already agreed sanctions (so not swift, but the ones about transactions in USD and EUR etc) - it was also written that the russian banks have up to May 24 to settle their transactions. Is that the last level of inter-bank settlements that's about? Or does it mean that the sanctions are ineffective until then?
So reading this: Banks are basically a necessary "evil" to make the current money system work. When I read how banks works, their technology, and how money works in general.. It makes me think: Is this really the way we want it to work.
I'm not sure if crypto is currently ready. But one BIG reason for it to succeed, is that the current system is just old... We have all these fintech startups improving money flow, and transfer times, and easy of payment... But it seems like tech build upon tech. centralized startups/companies owning payment systems (Apple Pay, Stripe, Adyen).... Man, i'm going to buy some more ETH :p
See, the thing is that you will need trust at some point. Back in the day you had to trust that your business partner didn't just whip out a sword and kill you to take your money.
Then you had to trust that they didn't hand you false coins. After that came false checks. Nowadays you need to trust that online shops aren't trying to scam you.
Essentially whenever you do business there will be one person that needs to make the first move, crypto or fiat, someone always needs to deliver first. But if these two business partners don't trust one another then they need a third party they can both trust.
In our world these are most often banks or notaries. People that will take money from person A hold it till person B delivers then pass it on. If person B doesn't deliver person A gets their money back, if person A doesn't pay person B doesn't deliver.
Now, crypto is trying to claim that smart contracts will solve this in crypto world but that raises the question of who executes these smart contracts and who feeds them information. After all this once again feeds back into the trust problem.
Essentially you need banks not because they are modern or technologically up to date or fast, but because they are in fact fully capable of clawing money back if the laws allow them to, unlike crypto where your money is secured by math.
Because even if some people don't like it, the chance of the average person being scammed is far higher than your bank or the government misusing the trust you have given them and taking your money.
Well, no: this isn't the way we want it to work. It's how it has to work. Banks aren't just a necessary evil - any functioning financial system needs intermediaries. Furthermore, in all but a small handful of cases, those intermediaries need to be trusted and trust-worthy. Bitcoin, and all other protocols based on Satoshi's design[0], are limited to maintaining a secure ledger of "on-chain assets". Any interaction with the real world still requires a trusted intermediary to feed data back into that ledger; and once you do that the downsides of maintaining a distributed trustless global ledger for the virtual side of those assets becomes apparent.
tl;dr, what makes electronic USD "real" is a system of consensus like bitcoin, except it's a node of 1 (the US Fed) with a handful of spokes (banks with Fed accounts) for scaling off that base node.
> 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".
> 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".
This is true, but it's actually sort of a specious point. What a eurodollar deposit "really" is, is just a short contract. Your European bank takes your exchange and promises to give you back dollars when you ask for them. That they may not have them right now is just a technical detail. But the value of the dollar is still set by what the market is willing to pay for it. The bank going "short USD" is a risk it takes, not an inflationary pressure per se.
So... sure. Foreign banks can create dollars just like brokerages can "create stock shares"[1]. Except, they really can't. They're just playing accounting tricks.
[1] Or, more relevantly perhaps, how one crypto exchange can create wrapped tokens representing foreign coins. This capability was part of the exploit chain that led to the DeFi hack last month.
Just to make sure we are speaking the same language: If I have $1 in a checking account in a US bank, do I have one dollar, or do I have a dollar-denominated asset of $1 face value, backed by a dollar-denominated liability of the bank?
Reserve requirements at US banks are regulated by the US government as one of many mechanisms used to control the money supply. So... yes, sure. It's complicated, but a dollar at a US bank is a "dollar", because that's what "dollar" means.
The contention upthread was that foreign banks could do the same thing to print dollars. And, again, it's complicated. They sorta can, but only in the sense of placing a gargantuan short bet on the dollar. (A ton of short selling on a small security can push the price down for the same reason). So no one does that, because no bank wants to play that kind of game (or is allowed: all those large foreign banks are themselves regulated by their own national regimes).
If you walk into a US bank and deposit $1 cash, they now owe you $1. To what extent they must have ready cash, fed deposits, liquid assets, illiquid assets, etc to back that debt is the subject of bank regulation
It's amazing to watch people who have never really thought about this before realize the entire banking system is built upon a handful of centralized, permissioned databases which can pretty much be turned on/off at will for certain parties by the central banks.
What is even more amazing is watching these same people (no necessarily you OP, but prevailing opinion on HN...) then go on an argue that a permission-less distributed ledger like Bitcoin is a completely unnecessary waste of resources.
>What is even more amazing is watching these same people (no necessarily you OP, but prevailing opinion on HN...) then go on an argue that a permission-less distributed ledger like Bitcoin is a completely unnecessary waste of resources.
Hating the way modern banking works doesn't mean blockchain is a flawless solution. It comes with a ton of its own problems (not the least of which being that it's utterly inscrutable to normies). I personally would prefer we go back to currency backed by gold or some other comparable commodity (silver, etc.)
Sure, I'd agree commodity money is preferable (and certainly trustless in p2p transactions), and in many ways better than blockchain. I just don't see how to map
that paradigm onto a world where people who have never met each other regularly transact across continents without introducing some trusted 3rd party. And the moment you add that 3rd party you end up right back where we are now.
How do you transact across continents without a trusted 3rd party, with blockchains? The only transactions you can do trust-less are transactions that happen completely on-chain, i.e. exchanging some cryptocurrency for other cryptocurrency or similar tokens. As soon as you want to exchange currency for good or services, that trusted 3rd party becomes necessary in the exact same way, no matter how "smart" your blockchain money is.
By trust-less I am referring to a trusted 3rd party (e.g bank or escrow service) needed to mediate the transaction between the two parties. Not necessarily a lack of trust between the two parties themselves (obviously it would be foolish to pay someone you didn't trust at all in an irreversible way, but I can order something from Amazon any day with an implicit guarantee I will receive it or a refund, despite not knowing anyone there personally). An if you are referring to the shipping company that is going to move the goods, that would be a separate p2p transaction (and probably insured) between the seller/buyer and the delivery company.
Everyone who transacts in a fiat currency digitally has a defacto third (or more) party in the bank that mediates the transaction, and even non-digital cash transactions inherently include the central issuing bank (who you must trust not to debase the currency...just ask a Turkish citizen how that's going).
So a transaction using cryptocurrency has third parties, who do just the same thing and require trust, but which you don't want to call "defacto" because...?
You describe money as if it’s just numbers being moved around: yes, the technology is just numbers moving around, but money is a social construct not a technology, the use of technology is a very small part of what makes money money.
As someone who finds himself thinking “wtf is money” every decade or so, the most recent book I read on this was pretty good - Money: The Unauthorised Biography by Felix Martin. It’s firmly in the “social construct” camp and makes some good arguments (to my lay mind!). There’s some really interesting stuff about the Fei stones https://en.m.wikipedia.org/wiki/Rai_stones
Honestly curious. What is the dissonance that you see there?
Digital fiat currency is indeed bank databases. Similarly, stock markets and stock ownership are also stored in permissioned databases. Both are highly regulated and enforced by law. For people in countries with a high level of rule-of-law, and a stable financial system, I’d argue that this works reasonably well.
I also think that blockchain and other crypto currencies can be very useful. Especially for people in countries where rule-of-law is not as important and corruption is high.
> For people in countries with a high level of rule-of-law, and a stable financial system, I’d argue that this works reasonably well.
I agree, but that's not always obvious at first glance. For example, I would've said Canada qualifies as a stable rule-of-law country with strong property rights up until a couple weeks ago.
I'm not sure how you can say it is de facto centralized. You may have had a decent argument as recently as last summer when most of the mining was done in China. However, we just watched them ban mining there completely, and the network carried on relatively unfazed. Seems pretty distributed to me.
This is similar to the "why are banks allowed to print money by issuing loans and I'm not?" confusion that sometimes goes around.
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 mean that "real" banks have issued loans of 10M+ and not gotten repayed by people/companies who went bankrupt or such? Certainly!
Banks do their due diligence for a reason, but they don't always get it right. And a certain amount of "bad loans" is expected anyway. Part of the fees and interest they charge is to cover that.
But that's very different than simply printing yourself 10 million dollars. Or even just ten dollars.
It's also different from you starting a bank and saying you loan me 10 million dollars. I now have a statement saying I have 10M in your bank. I try to take that to a "real" bank to cash out. It's not gonna work.
Unless, it seems, you call them "Tether". Which is one of the reasons why I remain unconvinced that Blockchain _actually_ enables a financial system requiring less trust than the current mainstream financial system.
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.
Then you have fraud, likely leading to an economic crisis.
Consider the 2007-2008 financial crisis. Abstractly, investors believed that homes had significant value until, one day, society realized the value didn't exist in reality but only "on paper." We know that investment bankers were hiding the problem until the proverbial lid blew.
You might consider that our current financial paradigm has never been tried before in human history. For thousands of years, currency was based upon various measures of value which attempted to be as objective as possible. Semi-rare materials (e.g. gold and silver) and difficult-to-replicate coinage were some examples. The US dollar was decoupled from the gold standard under the Nixon administration. The end result is, one dollar now holds value relative to the amount of dollars in existence. To increase the relative amount of precious metals into the world is relatively difficult (actual physical labor is required), but to increase the total amount of dollars in existence is as simple as updating a database entry.
If financial controls work exceedingly well, the current economic system is viable. We know, however, that they don't.
We know no such thing. The only objective fact is that there have been fewer financial crises since the dollar went off the gold standard than before.
Financial controls don't work perfectly, but having money tied to a commodity is fraught with its own difficulties. It's actually quite handy to have fine-grained control over the money supply that is not coupled to external physical circumstances because then at least we have the option of controlling it to produce better outcomes even if we don't always succeed.
It's true that every country can print as much fiat money as they want. It is obviously not true that this will make everyone rich because money is not wealth. Money is just an accounting system. It is useful to have a money supply that tracks actual wealth because it is useful to have stable prices. It makes planning easier. Fiat money is useful because it allows inflation/defaltion to be controlled by policy rather than the whims of fate. But it's still up to us to choose the right policy.
One dollar now holds value relative to your tax bill. If you're subject to US taxes then you have to hold dollars. The IRS doesn't accept precious metals, and if you fail to pay in dollars then they'll seize your other assets. (Technically the IRS might accept official US minted gold coins at face value but that's not really something that happens in practice.)
Other comments are making comparisons to asset bubbles or governmental money-printing, which is rather different than immediate bald-faced fraud on the part of a single actor.
Do you really think it's that easy? That *nobody else involved in the system ever was like "wait, what if someone tries to defraud us?"? That there aren't various levels of checks and methods to prevent such easy, easy things?
That, say, the FDIC in the US is just telling banks "sure, we'll insure your bank accounts, don't bother sending us verification, we trust you!"
Whenever you hear someone complain about onerous reporting requirements or other such business regulations, remember that those things get put in place to catch shit like this.
Actually the regulators encouraged backdated deposits to allow IndyMac to appear solvent.
https://abcnews.go.com/Business/story?id=6514493
"The impact of Western Director Dochow's approval to record the capital infusion in the quarter ending March 31, was that IndyMac was able to maintain its 'well-capitalized' status," ...
https://www.cnbc.com/2011/11/23/financial-fingerpointing-tur...
' Even if regulators are involved in wrongdoing, they have some immunity. Internal disciplinary measures are rarely taken against regulators who perform badly in their jobs, say government officials. '
What kind of citation are you looking for? That's not a controversial issue, it's just the basic reality of how fractional reserve banking has always worked. I'm sure that was covered in your Econ 101 class so open up your old textbook.
It's mostly just numbers on a computer in a bank. There are regulations concerning what banks can do with those numbers, but it all boils down to people having faith in the system in the end. That's why bank runs can quickly lead to economic disaster.
No that's not how it works. Bank runs are possible even with full reserve banking. If banks make any loans at all then obviously they don't hold enough cash to redeem all depositors. Regardless of reserve ratios, the only way to reliably prevent bank runs is with a central bank that provides liquidity upon request.
> with full reserve banking. If banks make any loans at all
These are contradictory. The banks with full reserve banking can't make loans from easily withdrawable deposits. They can do that only with term deposits that can't be withdrawn for a specific period
Is it still true though? The Fed averted this through QE by buying assets of questionable value at the face value from the illiquid banks and providing them with enough cash.. didn't they?
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..."
Some good answers above provide more detail here, but ultimately yes: money, for the most part, really just is a number on a computer.
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.
> when you borrow $500,000 from the bank, the bank’s funds don’t go down by $500,000
While technically true, this is a bit misleading, because if you actually /do/ anything with the $500,000, that does in fact cause the bank's funds (i.e. reserves) to go down.
If you withdraw it in cash, then the bank will have to give you some of the Federal Reserve Notes it has in its vault, and when they request more from the Federal Reserve, their account there will be debited $500,000.
Or if you send it to someone at a different bank, then to settle the transaction your bank's balance at the Federal Reserve (or another intermediary bank) will go down by $500,000, and the other bank's will go up. This tends to average out if both banks are receiving deposits and making loans at equal rates, but if they become imbalanced the bank is at risk of its reserves falling below the requirements, which it must remedy or risk bankruptcy.
You're right that low interest rates make it easier for banks to create money, though, because one option a bank has to remedy low reserves is to borrow them from another bank at an interest rate that the Federal Reserve can influence.
>> If you withdraw it in cash, then the bank will have to give you some of the Federal Reserve Notes it has in its vault
And while that is indeed technically true, it only applies to money withdrawn as banknotes. Given that most of the economy is electronic transactions, that loan is to all extents and purposes real money created by the bank out of thin air (modulo capital requirements to back debt).
I address electronic transfers in the next paragraph. Even if initially transferred only within the bank, it is likely to eventually be transferred to another bank, which requires the bank to transfer corresponding reserves to that other bank.
Only the Federal Reserve can create truly unlimited amounts of money without the risk that customers might request transfers that exhaust their reserves.
Complying with reserve requirements imposed by the Federal Reserve on banks help to mitigate this risk, but they are not the true restriction. Even if the reserve requirement was zero, banks would need to keep some reserves or they would be completely unable to fulfil requests to transfer funds to other banks. And even if a bank exceeded the reserve requirement, for example by keeping 50% reserves rather than 10%, they would be insolvent if customers requested 51% of balances transferred out and were unable to cover it with loans from other banks.
> It can't be just a number on a computer in a bank, right?
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.
Let's just talk about USD specifically. (Other currencies work pretty similar, just with different central banks.)
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.
> 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.
This is not exactly true. Chase, like many other US banks, is regulated by the Fed, and deposits at Chase are insured by the FDIC (Federal Deposit Insurance Corporation). If Chase becomes insolvent, the FDIC will take over, pay depositors up to the FDIC insured maximum, and liquidate any Chase assets. The Fed is not required to do anything in such a situation.
The Fed may choose to conjure up some new money and loan that new money to Chase, and as Chase is a systemically important bank, the Fed might well do that before the FDIC steps in, but they are not required to.
I have been learning (via books, podcasts, coursera, etc.) about what money is and how it’s created, both domestically and internationally, both in commercial banks and central banks; and let me just say this is a superb summary of all of that. Bravo!
USD are ultimately bearer notes, we've just built a bunch of trust-based infrastructure to enable transactions without moving physical currency.
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.
> I often wonder how money is stored. It can't be just a number on a computer in a bank, right? Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD.
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/
> A bank could easily create fake money into its own accounts, but it would have trouble transferring that money over to other banks.
In fact, isn't that indistinguishable (mathematically) from paying interest? The bank's internal accounts all go from X to Y. In theory, the bank should made more money that that in total, so at any given point the sum of all accounts is less than the banks money and accounts recieveable (usually via loans). And the bank can provide that money to other people if needed. But if a bank paid 1000% APR on savings accounts, all that would happen is the bank goes belly up and a lot of those accounts won't be worth the numbers they claim to have.
They can "print" as many USD as they want in-house. But in order to process transactions abroad, they need a US bank account. They can't print money in that.
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.
Within the US banking system, all of that is, for the most part, kept in line with the Federal Reserve System and other regulatory apparatuses to keep everybody honest. Outside of the US, you run into so-called "eurodollars" (unrelated to the Euro currency) which is a complete mess of intertwined financial systems from across the planet that a lot of people smarter than me pin on being the cause of the European debt crisis.
As far as I know they really are just numbers in databases, but if it's foreign currency, they can't just magic them out of the DBA's fingers. There probably are ledgers that have to agree with each other, e.g. if a Russian bank claimed it had those 100 Trillion dollars from a Cypriot bank, then the Cypriot bank would have to confirm it gave them that much, and then show everyone the source of that money.
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.
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.
Well, it's a number in a ledger system somewhere (e.g. mainframe system, Oracle database, or what have you), with a lot of auditing, reporting, and procedures around changing that number. (Though, having an internal API to instantly get a new bank account number always seemed kinda funny to me).
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.
Which could be revoked by printing new money with a new design and giving them only to the friendly parties in replacement of the old ones. It's routinely done (Euro is on its second design) and old banknotes and coins are no more valid after some years (the first series of Euros doesn't have an end of life yet.)
Yes, the design is routinely changed to make the currencies more safe against falsification. And the old currency is often taken out of circulation simply by wear and tear. But it is the sign of a stable economy that legal tender does not have an expiration date.
"Note that it is U.S. government policy that all designs of Federal Reserve notes remain legal tender, or legally valid for payments, regardless of when they were issued. This policy includes all denominations of Federal Reserve notes, from 1914 to present as per 31 U.S.C. § 5103."
https://www.uscurrency.gov/acceptance-and-use-older-design-f...
Shops aren't required to take the old local currencies anymore, but they can still be swapped.
Here for instances the information if the German Bundesbank, where you can still swap with the official rate of 1.95583 DM/€.
https://www.bundesbank.de/de/aufgaben/bargeld/dm-banknoten-u...
(Currently there is a restriction of in person service due to corona, but if you trust mail it works, else you have to wait for that Corona restriction to be lifted)
A notable anecdote is the Northern Bank robbery of 2004, when (presumably IRA) robbers stole 26 million UK pounds from the biggest Belfast branch of the Northern Bank, which, like other private banks in Northern Ireland and Scotland, issued its own banknotes. They held a manager's family at gunpoint during the action.
This total sum seemed to be far beyond the robbers' actual intentions, and the Northern Bank quickly issued a new banknote design, offering free exchanges for anyone with the old one.
Of course the robbed money had serial numbers, so it's now generally believed the IRA just burned most of the stolen cash.
Which would significantly devalue the currency because you'd hedge your bets against not becoming unfavourable to whichever regime controls its issuance.
> 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."
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.
Decentralized consensus & trust doesn't rely on banks and all the associated cost, complexity, obscurity, and gatekeeping that comes with them. With crypto: "Banks" can't unilaterally or fraudulently print more money, settlement is much faster & public / atomic, APIs are through transparent smart contracts rather than semi-structured SWIFT messages, and no need to rely on trust that funds are real compared to (say) Eurodollar derivatives -- i.e. many of the legacy hacks that others are talking about in this thread.
ITs a number of lots of computers that use crypto algorithms to decide what the True ledger is.. So it cant be edited like a row in a DB can. But yes. you're right.
That's right. Bitcoin is represented via 10-minute sequential hashed blocks. You can't forge that currency without re-doing 13 years of computing work.
Unfortunately many won't until they find themselves in a circumstance where decentralization is of vital importance. At which point it may be too late.
>Russia has also been building an in-house system since 2014—the last time SWIFT cutoff was threatened—which may mean they are able to temper some of the impact a cutoff would have on its economy.
If they're building a replacement, doesn't that also mean we should use "cut off SWIFT" now, rather than later when it'll be ineffective?
> If they're building a replacement, doesn't that also mean we should use "cut off SWIFT" now, rather than later when it'll be ineffective?
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.
I might be wrong but both of them aren't an equivalent to Swift. Rupay seems to be a card network like Visa and UPI builts on top of IMPS which might be considered an alternative, however IMPS is limited to financial institutions of one country and one currency.
I'm way too far away from power on anything like this so I might be terribly wrong, but I imagine that cutting off SWIFT might convince other countries doing bad things to consider adhering to Russia's system, if they see the West willing to cut them off as well. You then get fragmentation and SWIFT losing some of its "soft power".
Russia already uses multiple alternative settlement systems with China, Iran, and few other buddies like Norko, and Belarus.
> You then get fragmentation and SWIFT losing some of its "soft power".
This already lost any power it had in 2014, because the threat of disconnection was wasted.
An honestly, EU lost its face now to talk "soft power." Every foreign head of state going to meet EU bureaucrats will now look at them, and think "can I rely on these people who threw out every treaty for a want of sleeping without a blanket?"
I'm not satisfied at all with Europe response so far, but i might be missing something here.
> can I rely on these people who threw out every treaty for a want of sleeping without a blanket?
Why isn't the US sending troops? Because the risk of escalation and nukes are unacceptable. In case you forgot, Europe also has nuclear powers and the risk of escalation is higher if the EU as an organization openly acts on more then soft power.
And as far as i know, only the US and the UK are ignoring a treaty to offer security to Ukraine.
Again, I'm not satisfied with the response so far, but what exactly are you suggesting so that EU bureaucrats don't lose their credibility?
> Because the risk of escalation and nukes are unacceptable.
He can lob a nuke right now, but he knows he will lose against the US.
He will retreat to avoid an even bigger defeat.
Thugs I fought in my teenage years, even when they brought a knife to the fight, when they are afraid of getting KOed, and humiliated in front of their peers, they wrap up, and leave.
They don't want to get beaten up, risk humiliation, and potentially committing murder at the same time.
Similarly, US can give Russian state 2 choices, a defeat with orderly surrender, or end like Yugoslavia, but 10 times worse.
It's still an effective sanction because the Russian alternative is a half baked approach. It can only handle a fraction of the daily required transactions, only 40% of Russian banks are signed up to use it and it can only process payments during office hours.
To be fair, it's not only heating. It's power plants and gas to keep many factories working. Think about ovens of all sorts and all industrial processes that need a lot of electricity. But yes, it's the n-th loss of face of EU. It's not much about EU bureaucrats but about EU head of states, prime ministers, etc. which ultimately decide what bureaucrats do. On the other side of the ocean, if the USA let Putin go too far they risk losing part of their empire [1] which is always bad for business.
SWIFT is kind of like Facebook. It has the benefit of “everyone” already using it. So even if you make your own Facebook it won’t have the same functionality as Facebook and it’s very unlikely everyone from Facebook will be motivated enough to make an account on your platform, too.
Another interpretation is that keeping them on SWIFT at least gives you some leverage, while forcing them out of it only accelerates other payment infrastructure, which essentially will play right into Russia's hands anyway.
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.
That applies to a lot of known future sanctions. Eg clearly Germany would like to not need any gas pipeline, and Russia will aim to build more pipelines to China before German governments can say no more Russian gas. However, could excluding them from Swift at some point between 2014 and this week be justified?
I have always wondered, what combination of manual vs. automatic processes are happening when one makes a bank wire (actual wire transfers, not ACH)?
Because whenever I have done wires, in addition to the bank/IBAN/account numbers, there are all these manual fields like "for further credit to" etc. that are clearly having to be interpreted by someone. And very often errors come up and the funds are held or in limbo on one end or another.
Does anyone have a good explanation of what happens both on the initiating bank side and receiving bank side when a wire is done? I imagine that this is why it still costs $25-40 to handle them.
In Europe bank transfers are free and the standard way of transferring money. Cheques are pretty much extinct.
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.
To my recollection it’s manual and yes that’s why it’s expensive. Imagine it gets added to a queue, then daily via swift, the banks settle with each other. The queue has a bunch of different stuff and is a net single transfer between bank A and B depending on who owes who today. The manual part confirms that it was added to the queue which allows them the comfort of giving you access to the cash immediately. I think the fed insures these transactions and requires immediate availability of funds.
Interestingly SWIFT was used to effectively depose a Head of State already, specifically Pope Emeritus Benedict XVI. The Vatican's Bank was banned from the system and allowed back on after Benedict's resignation.
The lesson was not lost on Russia or China and they have been building an alternative system called BRICS.
Edit: Here's a contemporary source[1] from a "reputable" newspaper. It doesn't mention SWIFT by name but that's what it was. There were other "reputable" sources covering the story more explicitly back in 2013 as well, but web search's extreme recency bias leaves me unable to find them. Perhaps visit your local university library and they can help you search the periodicals.
The timing would imply that Benedict XVI resigned (at least in part) due to the scandal involving blackmail of homosexual members of the church. The wiki page on the resignation doesn't go into that at all, but does link to the scandal in the "See Also" section.
> 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.
The only reference I could find about that is an obscure Italian blog with the comment section filled with absurd conspiracy theories. Do you have some credible sources?
Think of SWIFT as a large Websphere MQ installation, distributed across several data-centers.
You get an IP access by installing a router, leasing telecoms connectivity.
You get access to publish/subscribe with an SSL certificate exchange.
You get access to send/receive to a specific node(Bank) with another SSL exchange.
It is important to realize nodes can only send messages to those addresses which have been trusted, i.e. keys exchanged.
So a bank (Bank-A) trusts you to send SWIFT messages, all you can do with these messages is make accounting debits & credits within that bank. e.g. please debit $100 from my account number 12345 to account 67890.
You can also chain the messages, something like, debit my account $100, credit the account of Bank-B, and send my message on to Bank-B.
The message to Bank-B might say (debit Bank-B and) credit John-Doe-account.
(It's the job of the treasury department within the bank to monitor & keep these nostro [other bank] accounts funded)
Perhaps not obvious, but banks don't have hundreds of correspondent accounts. So to send money from a small town bank in Peru, to another small town bank in Palau, there are going to be a lot of these back-to-back transactions. The pathways are determined by hardcoded rules - not by SWIFT - but by each bank in the chain.
So sanctioning SWIFT is one part. The other part is getting every bank on SWIFT to remove all correspondent banking rules going via Russia. (Quite nice work I suppose).
Since the messages themselves are just XML, and not partially large, you could easily put all the days messages which got rejected into a .zip & use email (I suspect this is common operationally anyway).
Any kind of sanction on SWIFT would instantly lead to private MQ (or whatever flavor of messaging) infrastructure springing up everywhere & total chaos for every bank in the world (i.e. quite different to Iran).
This would cause a reduction in the number of correspondent accounts each bank would be willing to maintain. So longer pathways, slower international payments.
I doubt SWIFT could recover from a sanction. It would just close down. The endgame being heterogeneous networks, poorer monitoring, so the USA lose.
The sanctions put on individual Russian banks can be monitored (by SWIFT). In likelihood they are not used as correspondent banks.
>How does the system guarantee that nobody's creating money without notifying everyone?
SWIFT doesn't do this. I suppose a special audit is triggered (see Wirecard ) and the Auditor should catch it.
It was always hard for me to understand exactly what SWIFT is. From what I could get, it’s a bunch of protocols that were standardized in order for banks to communicate between them. When you buy something in thailand with your apple card, barclay’s debit your account, talks to the feds, the feds talks to the BIS or some bank in thailand or some bank that might be able to talk to thailand, and so on. I think swift is the protocol each bank and central bank use to communicate.
If it is so, I’m not sure how you can cut swift from a country. It doesn’t sound like a centralized thing.
> If it is so, I’m not sure how you can cut swift from a country. It doesn’t sound like a centralized thing.
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.
If we "cut" off SWIFT it would hurt Europe and the States just as much as it would Russia because this is how all money moves. Think paying for natural gas, oil, commodities, etc etc.
Nitpick: doesn’t have to be equally - one party in a trade can gain more than the other, not necessarily proportionally to size (but both end up better off than not trading). The key is to sanction areas where the losses hurt the other side more than you.
Germany shut down their nuclear plants and built a expensive pipeline from Russia to use nat gas instead. Why?! This mistake could be one of the biggest in EU in the 2020s
Aside from SWIFT, we're not even talking about Nodstream 1 or other things.
This 'target the gov. and leaders not the people' is also a bit rubbish for 2 reasons:
1) The people are the country, they are not hugely separable. The people won't really feel the pain or 'see consequences' directly from SWIFT. It's a total abstraction. Even if their prices rise, the attribution will be lost.
2) Putin's approval post invasion is 69%. 5% of Russians think that Russia is responsible for the Ukrainian invasion. 50% believe that NATO is responsible. Just absorb that for a moment.
Despite some of the current protests that we see on the news (which are amplified in the Western press to the point of being a bit propagandistic), Russians are themselves complicit in what is going on, and at very minimum, things should be done to make a very clear populist signal to them.
a) Cancel all travel visas
b) Disallow all flights in/out of Russia to all friendly states.
c) Cancel a lot of consumer facing business: Starbucks, IKEA, iPhones and definitely entertainment, film, clothing brands, music apparel etc. Definitely cancel everything related to Football/Soccer. And ban all participation from any kid of international events. None of this 'Athletes from Russia technically no the Russian team' rubbish.
d) Send anyone on short-term business/study home. You can finish out the year, but your not coming back to Harvard next year - sorry - your Oligarch/Elite parents are complicit.
None of that will have dire consequences for anyone - but every single Russian will be hit with the message: you don't get nice cappuccinos when you're gleefully invading a neighbouring country. If you want nice shiny toys, get a new leader.
Putin is actually not invulnerable. His approval has been low over the last bit, he has people who want to replace him, the Oligarch and Big Business really do not like him, and the population could turn on him pretty quickly.
I believe part of the reason he was so physically distance from other members of his staff was not just COVID, but I suggest he's paranoid about a coup, which is after all the most common way for a Russian leader to go.
I remember read somewhere SWIFT can handle any currency, it's just most banks process US dollars only. US can audit every transaction after 911. EU invented INSTEX to buy oil from Iran to avoid the SWIFT ban.
All these sanctions are a bit of the joke when you are dealing with an insane leader in a country without elections and sitting on top of a pile of reserves. And the west is not doing one thing that could actually actually make a difference -- cutting oil and gas export because the west thinks it'll be too expensive for the west.
I feel these sanctions are still more of signalling, than actually doing something useful to help Ukraine.
The inescapable fact is Germany intentionally put themselves in a position to be more dependent on Russian oil/gas with their shutdown of nuclear power. The previous US president made a point about how Germany's decision contradicts the purpose of NATO.[1]
There hasn't been a large change in imports of russian gas in Germany since the start of the Energiewende. [0] Gas is largely used for heating, electrical heating was never widespread and would not have been a viable alternative, even with keeping more nuclear power online, since it is uncompetititve without major subsidies.
Anyway, gas consumption as a percentage of the total mix has been stable since before the start of the Energiewende. [1] Germany replaced some coal and nuclear with renewables and kept the rest stable while also substantially increasing total energy demand.
Since your are quoting one of the worst people I've ever had the displeasure of having to listen to, it is curious that you ignore that the US is a major importer of russian resources, too, and is now silent now about boycotting russian imports. [2] It was all fun and games when the trade-off was that Germany would have to import expensive American natural gas, but biting in the sour apple yourself doesn't seem to be on the table, at least for now.
By your own [2] above, Germany still consumes more than 67% of its energy from oil, gas and coal. Had it chosen to scale up nuclear instead of scale down nuclear, it would be less dependent on that 67%. France famously gets over 75% of its electricity from nuclear, and has plans to expand capacity by adding 6 more reactors [4]
U.S. is not a major importer of Russian energy. U.S. is a net exporter of natural gas.[2]. Foreign imports for energy fell 30% under the previous admin [1].
Russia only accounts for 6.6% of our foreign imports [1]. And foreign imports have become less important for the U.S. as it has become a net exporter of oil & gas [3].
Under previous admin, our natural gas exports doubled [2].
Mutual economic relationships have been seen for decades as means to lower the risk of military conflicts with Russia. I am not sure how much this was considered for the nuclear exit, but in general Germany has more consciously chosen closer ties with Russia over seeking independence than it accidentally stumpled into them.
Germany has traded energy dependence on Russia for pharmaceutical, machinery, and car exports that Russia can get elsewhere. Interdependence works well but this appears quite one sided. In explains their inaction in part, though 40% of Germans also supported the annexation of Crimea.
The decision doesn't contradict the _purpose_ of NATO, which is a fairly straightforward military alliance. It does impact the _effectiveness_ of NATO, because one of its member states is economically dependent on a non-member state with a high likelihood of conflict.
Trump is saying that NATO shouldn't exist because of this intertwinement, and there's a sentiment going around that NATO caused the conflict by existing and forcing Putin's hand. Saying things like "the purpose of NATO is contradicted" plays into that narrative.
Interestingly, trump hated NATO and wanted to leave it. I firmly believe that his griping about issues like this, while accurate, was really a move to weaken the alliance and make the relationship between the US and European nations worse.
That's because Hitler kept winning. He militarized the Rhineland in 1936, the allies did nothing. He took over Austria in 1938, the allies did nothing. He occupied Czechoslovakia later the same year, the allies did nothing. With every win, Hitler's popularity increased at home. He's reported to have been quite surprised when the allies finally declared war after Poland.
Neville Chamberlain negotiated with Hitler over handing Germany large swaths of Czech territory critical for border defense. The Czechs weren't invited to the conversation.
Hitler didn't have nukes and super-sonic missiles -- you cant do to Russia what you would want to do to Hitler.. at least not without a very heavy price..
And when Putin threatens nuclear first strike unless the west removes sanctions, or abandons the baltic republics, what next?
At some point you have to just call their bluff. Earlier is better than later. Putin himself knows that he'll be the first casualty in nuclear war, and I doubt very much that Putin's deputies would go along with a plan that results in the annihilation of the Russian people. He's playing a high-stakes game of chicken.
What does 'call his bluff' translate to in this context? Not take the threat of a nuclear war seriously and engage with Russia militarily anyways as-if the threat didn't exist?
Didn’t seem to end particularly well after the overthrow of the Romanov dynasty either. Adding nuclear weapons doesn’t make the prospect of political upheaval (let alone violent revolution) in Russia sound any more desirable.
I've been thinking about this all day and feel incredibly upset when I see what's going on.
What can we do? Have you seen what the Russians did to Grozny?
It all boils down to the fact that EU simply can't start a war with a maniac that has thousands of nukes. I'd say let him have it and Ukrainians refugees are welcome here by the millions.
Putin's now threatening Finland and Sweden should they dare join NATO and there's talk of the conflict spilling over in to Moldova and Georgia. That would change things drastically. As soon as EU or US forces take military action against Russia we have to assume he'll retaliate and then it's basically WW3. If that's what it takes to get rid of this maniac then so be it but the consequences for everyone will be severe.
> Putin's now threatening Finland and Sweden should they dare join NATO
do you have a link i can read up on? I would imagine everyone is running to the safety of NATO now and i can totally see Putin saying "if you try then you're next".
> ...then it's basically WW3. If that's what it takes to get rid of this maniac then so be it but the consequences for everyone will be severe.
"severe" would be the mildest term possible to describe what would happen heh
Sweden and Finland probably don't feel the need to join Nato but the threat that was made is enough to put EU on edge. Scandinavia is much "closer" than Ukraine.
The energy/heating situation in Europe is very tenuous. In the UK most everyone has gas central heating, and energy bills are skyrocketing. This is the most pressing domestic issue in the country right now, far above covid. Johnson is attempting to gain some popularity by putting on a tough face, but there is no chance he can survive if energy prices rise any further.
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.
30-50k is just the excess mortality in winter months. Further in the article they estimate the number of people who die whilst having difficulty paying for heating to be 3k, and even that is only a correlation - poorer people die earlier for many different reasons
I absolutely agree (I live in the UK), but in the end it's a question of money I believe. Somebody has to bear the cost of more expensive fuel/gas. I am sure if UK wanted it could have subsidised those costs till the next winter. I don't know how expensive that would be, but I doubt it's astronomical. On a balance of costs between squeezing Russia more or saving that money they (and Europe it seems) decided to save the money and go for measures like prohibiting Aeroflot flights or throwing Russia out of Eurovision.
They are signaling. Push came to shove and the unfortunate reality is that Ukraine isn't that important to most countries and the risk of a greater war is worse.
The lesson here is that every country should learn to defend itself.
I think the lesson is Ukraine should have joined NATO years ago and countries should only elect leaders who respect the alliance and want to keep it strong.
That would have just moved the timeline up. Ukraine is in a shitty position. Russia has always had a "red line" of conflict if Ukraine joins NATO. NATO has always known this.
Russia's neighbors want in to be protected from war, but there is no way in without starting a war.
Canadian PM Trudeau just publicly announced his government's support for booting Russia out of the SWIFT system a few minutes ago. So the international pressure is there.
While, in principle, I support sanctions against Russia for their actions, I can't help but think they are using Ukraine as part of a larger economic game. Basically, they are forcing countries to take sides to some degree, and any country that wants to continue trading with Russia will have to adopt an alternative financial system/network, one that is not Dollar-centric like most of the world currently uses.
I think Putin means to hold out economically as long as possible and give other countries a chance to adopt this financial network and eventually get to a point where Russia doesn't need to play by the West's rules anymore, because sanctions will have a diminished effect.
I think this has things the wrong way around. Russia and China have for the last twenty years been trying to break free of the dollar-centric financial system with some degree of success: both countries have, for instance, built up large gold reserves. Now Russia is using that prior preparation to engage in old-fashioned revanchism. Rather than being a move in a bigger game, I think this is Russia cashing in its chips.
The potential for bad consequences for Russia in the months ahead depends to a large degree on how China reacts.
China is very different philosophically. Hide your strength, bide your time. Their economy has also had a meteoric rise unlike Russia which is a flatlined raw resource economy. I mean Russia did for about 8 years but China is going for multi decade before they start cashing in.
> When Western nations threatened Russia’s access to Swift in 2014, Alexei Kudrin, a onetime finance minister close to President Vladimir Putin, estimated that it could reduce Russia’s gross domestic product by 5% in a year. Cutting Russia off from Swift could have ramifications for other nations as well, since Russia is a key energy supplier to Europe and countries rely on the Swift system to pay for fuel. Russian officials have repeatedly denied assertions that they intend to invade Ukraine.
Russian citizens like me will be hit hardest, as usual. Large institutions and wealthy individuals will find another ways to transfer money. Costs of goods and services will rise.
I believe the poster meant that normal people like him (and myself) will be hit the hardest [by the SWIFT cut-off (or other sanctions)] and the influential and wealthy will continue their act as they are prepared / wealthy enough to not care.
I was watching a mainstream news report (I'll try to find it and edit my comment) where the host and the guest were talking about the impact of economic sanctions. They said it's not intended to stop Russia, but to inflict pain on the citizens, so that they citizens will turn against leadership.
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.
> They said it's not intended to stop Russia, but to inflict pain on the citizens, so that they citizens will turn against leadership.
Which country has it ever worked out on? Cuba? Venezuela? North Korea?
None of them have turned on their dictators. Rather, they are living life in misery. What is worse is they have been not just cut off monetarily from the rest of the World, the dictators have made sure to censor all content coming into the country. So they have no idea (or worse: false propaganda) of what is going on outside their territory.
I haven't seen sanctions actually work in even one case (will be happy to correct myself if there has been a case where sanctions actually worked). Where people fought back against the dictator and established democratic rule. Even if there were popular uprisings it has lead to establishment of even more autocratic rulers or worse, control by militias/warlords or terror groups.
Cuba/NK are much smaller countries. For Venezuela, it insured the country cannot function properly. Russia is huge. Russia becoming the next Venezuela will trigger a sequence of events that will lead to its de-fragmentation into smaller states. (ie: Chechnya will probably go rogue)
Sanctions would work indirectly in the sense that the people would support regime change even if they can't bring it about themselves, if it means sanctions will be lifted and their standard of living will get better.
I don't think in any of the countries you list there's popular support of the leadership.
World leaders don't get into an octagon and duke it out to see who controls what territory. They send normal people (soldiers) to go acquire it for them. Occasionally the soldiers capture/kill a world leader but usually they reach some kind of (conditional/unconditional) agreement before that point. But the soldiers are not world leaders themselves anyways.
They're both in Kyiv, during an interview earlier today Poroshenko asked the west for more help and talked about the steadfastness of his resistance group, which he is fighting with, during the interview he showed off his rifle:
I recall seeing an image of Zelensky carrying a rifle and wearing tactical gear but can't find it, maybe I misremembered that. He is in Kyiv though, unless he shot this video and left immediately: https://www.nytimes.com/2022/02/25/world/europe/ukraine-zele...
OK, that makes more sense. I guess you were just using figurative language.
I believe that they are in Kyiv, and armed, and interacting with the troops. Fighting in battle would be a whole different story. It would certainly be brave, but unadvisable for Zelensky to be spending time in firefights instead of doing his job.
Soldiers are fair game to me, because they often choose to participate. Normal working people are just trying to survive, and destroying their lives in the hopes of influencing their country's leadership is on a different level. I get that it's war and war isn't fair, but my point is that war clearly reveals the underlying classes of people and how they're treated.
Ukraine is under general mobilization now. So no choice whatsoever. Even in volunteer armies one cannot ignore social economic pressure. Usualy the low grunt, those that do the killing and dying, are just poor bastards. On both sides. I read a comment not long ago: Simple soldiers on both sides have more in common with each other than their leadership. That very much true. Are aoldiers, and other combatants legitimate targets? Yes. Does it make their losses and casualties any less tragic? No.
Any broad sanctions will always affect the poorest more than the richest.
Modern warfare also affects poor people more than it affects the rich — children of Russian oligarchs are off in New York and London, not fighting on the battlefields.
But the sanctions are very much meant to stop Russia's invasion of Ukraine, and to disintentivise Russia from invading other sovereign nations. Only Russians can stop this aggression.
If the US citizens can't improve their own govt and get them to stop neverending wars, I think it's a tall order to expect citizens in a dictatorship to do it. Point isn't US bad -- point is, no easy way to affect change other than revolution which too ends up with bigger tyrants..
That's my point. The ruling class is free to exploit, manipulate, and abuse the working class, up until they're really needed for something important, like bailing out banks, or pressuring another country's government. I guarantee we all share more in common with the working class from different cultures than we do with our own ruling class.
I would submit that most of the commenters in this forum have more to do with the ruling class than with the working class. (The median personal income in the US is about $36,000/year. (https://fred.stlouisfed.org/series/MEPAINUSA672N))
1) Having more money than the median doesn't put in you in the ruling class. 2) How does the proportion of HN users that are ruling vs working class add to the conversation about not abusing the working class?
Well, a) they are literally the only ones who can do anything about Putin's regime, and b) they are paying taxes, no? Those taxes pay for the Russian military. Destroying a country's economy is just about the only way to stop a modern nation's military.
Oh, and c) are there any other knobs to adjust Russian foreign policy?
a) I am unconvinced that they have any more direct power over their leadership than any other country's citizens do. Is this naive? b) We all know that taxes are involuntary. You make it sound like the Russian people are complicit in this attack. c) There isn't always a knob to turn when someone does something that you don't like. A bully can sometimes take someone's lunch. There doesn't seem to be unified international response, so this is what happens. The best I've heard is "let's hurt their citizens and see if it helps."
I'm sorry that this is the case, but, I'm pretty sure that's the idea. At this point, your government is not acting with anyone's best interest in mind, including that of its citizens. It's up to the rest of the world to make it clear what the consequences are for that, in the hopes that if your leaders don't change their mind on their own, you'll do it for them.
That's the propaganda used to justify sanctions, but historically, no government has been overthrown due to sanctions. The sanctioned country can just use the sanction as an example of hegemony, which isn't exactly inaccurate. What sanctions do accomplish is that they give you an avenue for more aggressive intervention. An example of this is America's sanctions against Imperial Japan before WWII.
> That's the propaganda used to justify sanctions, but historically, no government has been overthrown due to sanctions.
Since the idea is to get governments to change their behavior and being overthrown is just one of the extreme tail risks that play in to motivating that behavioral change, that's neither surprising nor inconsistent with sanctions working.
There's evidence that economic sanctions destablizie the specific leaders of countries they target, even if they do not affect direct regime change.[0] I don't think it's propaganda to say that's the goal of sanctions; I think the argument that the sanctions will definitely work is propaganda/tough talk on the part of the US. Candidly, I think much more severe consequences than unilateral sanctions would be necessary to actually stop this invasion at this point. However, given that Putin is the driving force behind this invasion, it makes sense to take measures that are designed to get rid of him.
If I understand the parent's argument, it's not that there are alternatives - it's that the actual goal of sanctions is to "rachet up" to more aggressive responses, possibly including military responses. I don't disagree that they can have this effect, but I really don't think that's the direction the US wants to go right now.
Yeah I just lost my business banking and can't anymore get payments from the states. But, most Russians support war, I don't care about them and ok with small inconvenience.
I know this might be perceived as a flame-inviting response, but who are those "most Russians" that "support war".
Even pretty patriotic people in my social circle don't support it. Now, of course, it might just be me and my circle, but the "majority supporting war" might also be someone's circle, and not really representative of reality.
In any case, from what I see, most people are just afraid. Withdrawing cash, some stocking food. It's not like the west is watching a horror show, and the people in Russia are watching a comedy. Everyone's losing. I honestly don't know who's the winning party here.
I don't really care much about the state of Russia, and maybe, just maybe the sanctions will have some positive effect; just wanted to say that "most Russians support war" is a very shabby argument in support of approving of punishing "most Russians".
War has costs for everyone. Consider these hardships doing your part to stop your country's aggression, and remember the Ukrainians have it much worse than you.
IMO I think such acts only make the state stronger.
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.
I have a VPS I bought at OVH to act as a VPN, does it mean I won't be able to access information freely on the Internet if SWIFT is cut (I use a Russian bank account)? Or maybe I can open a bank account in some neutral country?
If you make card payments, SWIFT won’t be what cuts the renewal.
If you make transfers, it may be temporarily interrupted or slower while your bank shifts their integrations. They plausibly have either accounts at the ECB, or relations to a bank that does.
There may be KYC hurdles to opening a EUR account online.
Russian citizens should be formenting anti-Putin thoughts in the general public. His popularity allows him to do this nonsense. If the sanctions help convince you such a thing is a good idea then they’re working as intended.
Putin will simply accuse the West of trying to make lives of Russians more miserable (technically it wasn't Putin who cut Russia from SWIFT) and many people will believe him, considering that thanks to fake news on state TV the majority believe the crisis was provoked by NATO. It won't work.
Loans create deposits. When a bank issues a loan, it creates the equivalent deposit automatically.
That's the loan department of a bank.
The treasury department of a bank then persuades the ultimate holders of those deposits to swap them for bank bonds and equity, which then fulfils the 'capital requirements' of regulation.
In other words lending is not restricted by quantity, but by price. Banks are never constrained by regulations on the liability side. All they do is change the price of money.
The way Russia will pay people is by the Russian Treasury paying whoever needs paying in Roubles. That creates an automatic overdraft for the Russian Treasury at the Russian central bank that balances the additional commercial reserves the transfer journal creates. And that's all they need to do. They don't even need to pay interest if they don't want to.
How do I know this? Because that's how the UK's Bank of England and Treasury works, which along with colleagues I have documented in very great detail[0]
People in Russia will accept those roubles because Putin will tax them in roubles and throw them in gulags if they don't pay. As long as he taxes enough, there won't be any inflation.
That's all the Russian authorities need to do to ensure a flow of real goods and services towards the Russian war machine. They are self-sufficient in everything that matters, and anything else he needs he can source via China in exchange for oil, gas and other natural resources.
What would be really entertaining is if Russia demanded that other countries settle their gas bill in Roubles. Then confiscate foreign holdings of them. How long then before the EU sues for peace?
Swift is a glorified email system between banks, and can replaced by a different email/MQ system between banks. Correspondence banking existed for centuries before we had computers. The excessive excitement over Swift belies the reality of how transactions are settled by banks on the ground.
Stopping Putin transacting in other currencies is irrelevant. Since the world is stopping selling stuff to Russia he will have no bills in other currencies to settle. The only people that suffer are those providing the transaction services in the West, who will earn less and may have to lay off workers.
> A cutoff from SWIFT may also have longer-term second-order effects on Bitcoin and non-fiat currencies.
And remember that Bitcoin has a fascinating property here-- the more demand there is for transactions on it, the better it gets at scaling for something approaching SWIFT level of transactions.
Oh wait I'm thinking of Bittorrent's scaling wrt popular torrents. Yeah, Bitcoin's ability to scale is complete shit.
Also, if global Bitcoin demand increases because it’s used to circumvent Russian sanctions, the more likely it becomes that Western governments will simply shut down exchanges within their reach. And that would certainly have a chilling effect on Bitcoin price.
Bitcoin's Lightning Network scales just fine, but based on your comment it doesn't look like you are interested in how Bitcoin works, instead wanting to jump on a bandwagon.
Lighting doesn't work for large transactions, and isn't trustless for very small transactions. And lightning relies and being able to close channels so lighting security breaks when Bitcoin is congested.
I can tell you something you can’t Google in 2 seconds: have a close friend who’s also a programmer that worked on SWIFT: the transactions are conducted through XML files on FTP(!) drops.
Yep, and actually I worked on the US Federal Financial Aid system and the transactions between the DOE and schools work the same way (called SAIG Mailbox)
There isn't anything really in this "explanation" that cannot be googled within seconds much less that would require him to be an expert. For me it explains nothing. I don't know, maybe it is a little enlightening for a person that never heard of SWIFT before, that didn't know it's "something related to international payments" and now he does. But I'm not sure this qualifies as an explanation.
quite a few commenters have pointed out SWIFT as a hand of soft power and i think its important to understand the twitter post doesnt mention an important fact:
SWIFT was created in order that Europe may resist Kissingers increasingly capricious hand of soft power as it emerged as a lead sap in an increasingly arbitrary US foreign policy. 40 years ago the US had become effectively drunk on soft-power moves against states it perceived as even remotely objective to US interests. Is your president elect too socialist? you get an aircraft carrier floating in your strait for a year. did you nationalize your oil fields? sanctions mean you cant sell it to anyone. Cuba to this day still enjoys endless sanctions for resisting regime change.
in 2022 sanctions are to international diplomacy as a tantrum is to a toddler. theyre effectively meaningless as most capable, observant countries have managed to sidestep in part or in whole the once dominant US hegemony of finance and trade. even the threat of a blue-water naval presence is an unspeakable taboo as Russia is one of a handful of emerging countries you wouldnt dare send an aircraft carrier to patrol, unless its goal was to secure the ocean floor.
The only meaningful threat SWIFT offers is the ability to assuage short-term market fears among traders that dont fully understand just how inapplicable SWIFT is in this case.
> in 2022 sanctions are ... effectively meaningless as most capable, observant countries have managed to sidestep in part or in whole the once dominant US hegemony
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 is an excellent point, one i hadnt considered. SPFS only has 23 banks connected to it as of 2020, so if its to be an alternative Russia would have to consider it as an alterative of last resort. just how strong is it?
the consternation im still faced with is "with the support of the entire EU." It may be difficult to secure a resounding vote with the bemoaned sword of Damocles. much heating fuel comes from Russia in the dead of winter.
still other HN posters make a great point (and in other posts too) that every time SWIFT is disconnected, it popularizes alternate markets at the expense of US and EU interest. certainly a stronger SPFS must be taken into account.
Yeah I actually have no idea where India stands geopolitically and I had totally forgotten their considerable impact.
I wonder how their government views these events?
They did not condemn it but they also did not signal support like China did - I suspect Modi expected Putin to stop at Donbas and sees his best option right now as a ceasefire, which is what he's openly asked for as well.
Unlike Russia's allies other than China, India cannot afford to be shut out of the US and supported by Russia, and unlike China, Europe and the US can impose fairly strict sanctions on India in the short-term.
The EU would only go along with this because the US has them by the proverbial balls. European militaries are a joke and there is no domestic political support for building them up.
America represents 40% of NATO forces. America guarantees the physical security of Europe in consultation with the governments of these nations, but there is an inherent power imbalance here.
A reminder that two of Western Europe's militaries are nuclear, which hardly makes them "a joke". You seem to be projecting the state of Germany's military to all European forces, which is... questionable.
The nuclear arsenals of France and the UK are a bit meager relative to Russia and the US. That doesn't mean that they can't inflict a good bit of damage but MAD isn't in play with them unless the US is backing them up with its own nuclear arsenal.
French (and probably British, although I know it less) doctrine is not MAD - it is to incur "unacceptable damages" to an offender. And 500-ish combined warheads sure sounds like it can achieve that.
Keep in mind that most modern nuclear warheads are MIRV weapons, which dramatically amplifies the scope of the damage. These aren't Truman's nukes anymore.
The EU collectively outclasses every likely regional aggressor or likely regional coalition, and can project power better than any but a handful of other states (most of which are unproven against that challenge). Throw in Britain and only the US—which is in a mutual defense pact with several EU states—is clearly ahead of them. How's that "a joke"?
European countries could barely sustain bombing runs during the Libya intervention. They struggled to consistently field single digit number of planes at the same time.
In this particular conflict, the stakes for the EU is much higher than for the US.
Sure, the US is historically (recent) more happy to go into conflicts around the world, but this is a conflict bordering many EU states.
The Baltics, Poland, Slovakia, Hungary, Romania definitely aren't happy seeing Putin on their doorsteps.
> in 2022 sanctions are to international diplomacy as a tantrum is to a toddler. theyre effectively meaningless
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.
> ...theyre effectively meaningless as most capable, observant countries have managed to sidestep...
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.
> in 2022 sanctions are to international diplomacy as a tantrum is to a toddler. theyre effectively meaningless
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?
> Cuba to this day still enjoys endless sanctions for resisting regime change.
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.
> in 2022 sanctions are to international diplomacy as a tantrum is to a toddler. theyre effectively meaningless
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.
Nah -- Bill Browder seems to be a expert on this exact topic. He's saying to pull Russia from Swift. His experience suggests he is intimately familiar with the financial world and the consequences.
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.
Him thinking that, however qualified he is, does not mean he's right. Being the CEO of a hedge fund, with a personal grudge against Russia, does not make you infallible.
The US benefits enormously from owning the reserve currency and running the world financial system, and the ultimate effect of our trigger-happy approach to sanctions is to push countries away from those, especially with the US becoming a smaller percent of the world economy every year. Even the Europeans are sick of it. The Europeans only play along still because they are militarily dependent on the US, in part because their populations have, under the comfort of the US security umbrella, developed irrational political beliefs against building up their own militaries.
> The US benefits enormously from owning the reserve currency and running the world financial system, and the ultimate effect of our trigger-happy approach to sanctions is to push countries away from those
That seems belied by actual history. The US has been a "trigger happy" sanctioner for basically the entirety of the post-war era, and the dollar has been dominant throughout. What would change now that didn't when we sanctioned Iran, or Iraq, or Cuba, or Yugoslavia, or...
Eventually a tipping point is reached and a seemingly minor event can cause irreversible change many magnitudes larger than the event itself. This is ok if you're certain where the tipping point exists and can keep from getting too close to it but in economics, especially when intertwined with geopolitical matters, it's doubtful anyone even knows the ballpark of where that tipping point exists until they're looking at it in the past.
As opposed to random commenters on HN who are likely SWE and not experts in finance or geopolitics?
I hate this trend of "well he's an expert so he might be wrong". Okay, sure, we are all human and make mistakes, but, he's also an expert and you don't become an expert by being wrong all the time. Not sure how many people here are qualified to comment on these events instead of him.
>I hate this trend of "well he's an expert so he might be wrong".
Trotting out an expert who you agree with, to end discussion, is just as bad. You can find reasonable experts on all sides of issues. It's almost always used as a rhetorical technique to shut down debate.
Trotting out an expert is far better than just random comments from uninformed people. I'd just rather say "I have this expert I agree with" vs "I'm a SWE that has no background in this and my opinions are somehow weighted the same" or "this expert is wrong despite the fact that I have no understanding of this subject"
Might be worth considering that some of the people in this conversation are well versed in foreign policy debates and don't need to cite to names to invoke reasonable ideas.
Might be worth to consider that HN commenters clearly are not foreign policy experts and should be citing people that are. Lots of armchair "experts" around here thinking that because they are smart people who work in a stem field, that their opinions should carry any weight. Would you take tech advice from a history professor? No? Then why is it ok to do it for geopolitics?
If the Magnitsky Act actually worked then we would expect changes in the behavior of the people it sanctioned to get off the list. Looking at https://en.wikipedia.org/wiki/Magnitsky_Act#Individuals_affe..., it doesn't seem too effective. Dan Gertler is still a billionaire even though he's on the list. In practice I suspect OFAC designations just mean the designated individuals need to pay some lawyers a fee to get their assets held in the names of nominees.
Access to SWIFT is one of several economic tools which work together to limit and essentially “bleed out” the target economy. Although Russia acts like a big bully, their economy is relatively small (e.g. smaller GDP than Italy) which makes economic actions especially impactful (even if it will take a moment for them to fully reach their potential).
Comes as a shock, it seems that Ukraine has been sold out. Key passage: "As Hosuk Lee-Makiyama, the head of the European Centre for International Political Economy, said, Europe has allowed itself to become more integrated with Russia, while Russia has separated itself from Europe.
He said EU countries owned a combined €300bn of Russian assets that would be vulnerable to confiscation if a full-blooded financial war broke out. The UK owns billions more via firms such as BP, which has a near-20% stake in the Russian oil company Rosneft.
“Sanctions are one of the few options that European countries have in a conflict situation like this. If you disconnect North Korea or Iran from the international financial system, you do not expose yourself to that much damage.”
Speaking on BBC News, he added: “But while I don’t say it is impossible to envisage Russia being barred from the Swift system, it is a nuclear option that means you exterminate yourself along with your enemy.”"
"Please don't complain about tangential annoyances—things like article or website formats, name collisions, or back-button breakage. They're too common to be interesting."
1. Russia has been building up gold reserves, not crypo reserves
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's plenty of services which map Bitcoin addresses to real-world entities, e.g. Chainalysis Reactor, so coming up with a list of addresses to freeze/sanction would be the easy part.
>coming up with a list of addresses to freeze/sanction would be the easy part.
Coming up with a list of suspects is easy, convincing others that they're totally guilty is the hard part. I doubt miners would want a company like Chainalysis to be judge, jury and executioner of the bitcoin network.
I think, if the SWIFT ban really was "on the table", they would be making the case for China's own CIPS/CBCD system, if Russia decided to opt for such service as an alternative.
The NSA targeting SWIFT is interesting because it's difficult to legally justify if one (or especially both) parties are US citizens. But spying on CIPS is exactly what the NSA is supposed to be doing. It's unlikely they are not.
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.
Thanks I had quite a laugh reading your last sentence because most peers here in Berlin couldn't be bothered to report anything that doesn't directly impact them.
For people living somewhere out rural shthole in West Germany perhaps might be triggered enough to file a report with the myriad of administrative concerns available to the spoiled citizen
How will Germany pay for Russian oil if they cannot use SWIFT anymore? I know! Our politicians will simply use whatever financial system that Russia will propose.
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
Germany wouldn’t pay for gas and oil, and deliveries would stop. Reserves are probably high enough to last into spring, so there’d be about 9 months to find alternatives before next winter.
Russia, meanwhile, would be bankrupt within a few months.
It's very likely. It would be an effortless switch to Bitcoin for Russia and give them access to a currency/network completely invulnerable to nation state controls.
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.
How many people complaining about the weaksauce sanctions proposed against Russia would be prepared to deal with the effects of more stringent measures?
I'm thinking especially of people in Europe castigating politicians for not wanting to clamp down hard on the Russian energy sector. The way I see it, the europols are in a no-win situation. If they go easy on Russia and keep the gas and oil flowing, they look like weak and waffling appeasers, which yes, they are. If they cut off the Russian gas supply, will the people posting Ukrainian flags on Twitter remember or care about the noble root causes when faced with unprecedented energy prices?
I.e. the politicians know their people better than they know themselves, and they're well aware that showing support on social media is one thing, but being asked to make drastic sacrifices is quite another. These politicians will not survive if they do what their voters are clamoring for them to do.
Of course, they probably wouldn't be in this position if they hadn't taken energy strategy advice from Greta Thunberg, but that's neither here nor there.
> Of course, they probably wouldn't be in this position if they hadn't taken energy strategy advice from Greta Thunberg, but that's neither here nor there.
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.
I think what they were referring to was Germany prematurely decommissioning nuclear plants only to start replacing them with coal and (more importantly) Nord Stream 2, which I never understood either.
Replacing them with coal would have been a good idea, at least as far as Russia is concerned, since it’s a local source of energy. In reality it was, indeed, natural gas and renewables.
Bringing Thunberg into this discussion serves no purpose except making conservatives giggle because they love hating her. She had nothing to with the decision, and being anti-nuclear isn’t what she’s known for.
Northstream 2 was, indeed, a terrible idea. But it never became operational and therefore does not affect the current situation.
Replacing them with coal would have been a good idea, at least as far as Russia is concerned
Did Russia have some involvement in Germany's nuclear power infrastructure? I'm not aware of that, but interested to know more.
Bringing Thunberg into this discussion serves no purpose except making conservatives giggle because they love hating her. She had nothing to with the decision, and being anti-nuclear isn’t what she’s known for.
Sure, it was probably a bit forced. I wouldn't have chosen to bring her up. Either way, her anti-nuclear stance is now a relatively widely publicized recent event; I don't see that GP did something particularly wrong in referencing it.
Northstream 2 was, indeed, a terrible idea. But it never became operational and therefore does not affect the current situation.
Huh? It's directly related to the current situation.
IDK. In an interconnected global economy my sanction of you hurts you, but it hurts me as well. For example, the higher price of oil is good for Russia and OPEC, but not the rest of us.So where is the pain?
Certainly there are things that Russia has that the West needs. In addition, if Russians are generally used to less - and the West isn't - then again where is the pain? After two years of pandemic are most Americans up for this? Most importantly, how can this not influence the 2024 election?
Finally, I listened to (most of) Biden's speech yesterday and I was stunned by the irony. Per invasion Putin was effectively saying "Russia can't trust The West. They're out to get us" and Biden follows that with "Lookout Vlad...we're gonna put a hurting on Russia." Doesn't this validate Putin's narrative?
I understand...it's complicated. But it's also 2022, not 1952.
High price of oil is good for Russia only if they have buyers.
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.
They are absolutely not going to have issues selling oil . Note that the US didn't even sanction their oil because a) they need it on the market b) they know they are going to sell it anyway
I have to take issue with this assumption. We've used such tactics against a number of previous bad actors, and yet those actors keep coming. The latest round (in this case against Russia) certainly wasn't a surprise about the sanctions, yes?
So again, back to my OP...Exactly how effective can we expect these sanctions to be if Russia knew they were coming and that threat didn't deter them? Who is actually feeling more pain?
The arc of my point is simple...Putin had a plan and we (and The West) led with our chin. What's our solution? "Print" more money? Let's not be naive, there are economic consequences to that here.
True. But it's relative. Even if Russia get 75% of the market price, that's still a solid buck. And since they can control the chaos, they can manipulate price.
So if everyone loses, not just Russia, and relatively The West has more to lose, where is the pain for Russia?
> Per [sic, "pre-"?] invasion Putin was effectively saying "Russia can't trust The West. They're out to get us" ... Biden follows that with "Lookout Vlad...we're gonna put a hurting on Russia."
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.
You've missed it, just like Biden did. If you leave the US media bubble, you find that the US gov ( not the people per se) have a reputation. So now Putin - and others - can say "See. Told ya so." Because he promised anti-Russia and we delivered it.
for who? Is this some kind of environmental argument. If so I think that is very short sighted. Renewables aren't going to magically overcome all of their headwinds because oil get's more expesnive.
All we are going to get is huge inflation and maybe a very marginal increase to the renewables time frame while we get a huge and costly headache in the short term.
I suspect the person suggesting it probably has a large income and only spends a tiny percentage of their income on fuel and food unlike a large portion of the world.
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.