March 1, 2024

HPAS/Allied Mains 2022 Answer Writing Challenge Day 26: Model Answer

Question: Briefly explain the SWIFT system in banking? (4 marks, 60 words)

Answer: 

Introduction

  • Established in 1973 and is based in Belgium
  • Behind most international money and security transfers is the Society for Worldwide Interbank Financial Telecommunications, known as the SWIFT system.
  • SWIFT is a vast messaging network banks and other financial institutions use to quickly, accurately, and securely send and receive information, such as money transfer instructions.

BODY

Important aspects of SWIFT-

  • Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a member-owned cooperative that provides safe and secure financial transactions for its members.
  • This payment network allows individuals and businesses to take electronic or card payments even if the customer or vendor uses a different bank than the payee.
  • SWIFT, today, is the largest and most streamlined method for international payments and settlements.
  • SWIFT works by assigning each member institution a unique ID code (a BIC number) that identifies not only the bank name but the country, city, and branch.
  • SWIFT has been used to impose economic sanctions, such as on bad actors like Iran and Russia.

CONCLUSION

  • While SWIFT does not actually move money, it operates as a middleman to verify information of transactions by providing secure financial messaging services to more than 11,000 banks in over 200 countries.
  • The US and the European Commission released a joint declaration to ban Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system as a response to Russia’s conflict with Ukraine.
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