6 ms·

How international money transfers work (2016) [video]

210 points by rjzzleep 5y ago

manholio 5y ago
moasda 5y ago
Good video, it contains an explanation of SWIFT.
deleted 5y ago
[deleted]
saul_goodman 5y ago
Very interesting, and the Bankers Almanac was something I'd never heard of before. We're all used to PayPal/Stripe/etc. working instantaneously because it's already inside the US system. While SWIFT seems decrepit, it explains how much trust is involved in banking; more-so for international banking. If there was not a person in the middle of international transactions banks would face a lot more potential fraud. If your bank went out of business because they participated in some dodgy international transactions you would be rightfully pissed off at losing all your money. The Bankers Almanac also helps explain how "legit fraud" takes place, ie: how money can move around sanctions. It seems clear that by cutting Russia off from SWIFT probably stifles unrelated 3rd parties from moving around other road-blocks. Could also be something helping to clear the path to CBDC's: by removing major exit points to "Freedom Dollars"/cash.
- rjzzleep 5y ago
  What you consider a feature I consider a bug. Whatever was the predecessor of SWIFT was, was probably not intended to cut people off of international settlements, it was intended as a way to establish trust between otherwise untrustworthy parties. It's kinda to normal banks what the BIS(bank for international settlements) is to central banking. The very fact that one party can bully others to completely shut off parties from international banking is probably not what a lot of countries thought when they joined the system. The Chinese' CIPS actually uses the SWIFT messaging system underneath, although I imagine China to be as neutral as the US/SWIFT when their own interests are at risk. As much as I dislike Crypto what it is today, in a way the idea behind it is supposed to decentralize the trust system that is at the core of SWIFT. Otherwise you should consider that the only way you can have a truely neutral settlement party(i.e. a neutral SWIFT), is if it is run in a country that is strong enough to have a fully independent economy(already unlikely) and has enough military power to support itself. But then the latters interest in global power would probably directly interfere with the concept of neutrality.
  - deleted 5y ago
    [deleted]
  - elsjaako 5y ago
    You mention cryptocurrencies as an alternative. But many/most of these have an open ledger. Isn't it possible for a government to sanction certain bitcoin accounts, making any bitcoin coming from them either worthless or less valuable?
    - almostkorean 5y ago
      That is mostly correct and a big issue with crypto in its current state IMO. If government blocks your off-ramps, it's possible you could still sell via a bitcoin ATM or find someone to do an OTC trade but those are obviously not ideal. If we are talking ETH, it's possible to use zero knowledge proofs to send money and make it impossible to trace back to the source (see https://tornado.cash/ https://tornado.cash/). This also has some limitations, like you wouldn't be able to tornado 8 figures worth of ETH but certainly better than an OTC deal. It's also possible that the off-ramp exchanges could block any ETH that was sent through tornado. This gets hairy pretty quickly though, as the tornado ETH could easily be wash traded or mixed. Or it could be used legitimately, swapped for stablecoins, etc.
      - gfdfddd 5y ago
        if you were trying to block russia on ETH, and you were already blocking certain BTC addresses and it's "descendants" to the end of the blockchain... how many hours do you think ETH addresses associated with things like tornado would last? 24? 48? all of crypto ignores the real world.
        almostkorean 5y ago
        No idea what the actual numbers look like, but I think I see your point and think that level of overreach is unlikely to happen in most scenarios. If the government could track cash as well as they could track crypto, should a business or individual that unknowingly receives illicit cash be punished? It's certainly possible but I think it would be untenable in a country where people can vote. I also didn't expect Canada to freeze bank accounts before last month, so maybe I'm off base
briodf 5y ago
I'm the co-founder of a international money transfer comparison engine, AMA if you have questions about international money transfers from a consumer perspective.
- cuchoi 5y ago
  Love monito.com! Congratulations on your product. Do you know why so many money transfer system have restrictions on the directions to send money? For example, Wise only allows sending in the USA (USD) -> Chile (CLP) direction but not the other way around. Also Moneygram only allows USA -> Chile and it is blocked from non-US IP adresses.
  - briodf 5y ago
    Thanks! This is likely a combination a question of Money Transfer/Transmitter License & compliance, but this is not my area of expertise. A provider like Wise is licensed in the countries where it accepts customers. In this case, Wise is licensed in the US but not in Chile: https://wise.com/help/articles/2932693/how-is-wise-regulated-in-each-country https://wise.com/help/articles/2932693/how-is-wise-regulated... As it's a costly and complicated endeavour, they must prioritise the markets they operate in and must have made the business decision not to be licensed in Chile as of now. Luckily, Monito always try to find local companies filling the gap of big players, and Global66 is an interesting alternative from Chile: https://www.monito.com/send-money/chile/united-states/clp/usd/?mode=live https://www.monito.com/send-money/chile/united-states/clp/us... Moneygram is likely limited in accepting US residents with their US site for similar reasons.
- bko 5y ago
  Two questions: - The video talks about a suspense account, basically locking your money prior to it being netted out against others and sent to the central bank. How often do these take place? How does that relate to my checking account having money as "available" as opposed to deposited? In general, which step is responsible for money transfer taking so long? - What prevents me from going to two ATMs at exactly the same time and withdrawing my entire balance? Is there a single central location for instantaneous money transfers like ATMs?
ck2 5y ago
This is what russia is doing in response, taking their national system and making it international to end-run around SWIFT https://www.fxempire.com/news/article/central-bank-of-russia-launches-swift-replacement-with-399-users-918266 https://www.fxempire.com/news/article/central-bank-of-russia... If China joins it, that's going to be a problem. Then I wonder if the spy agencies are going to be able to monitor those networks like they do SWIFT
- RC_ITR 5y ago
  >If China joins it, that's going to be a problem. Will it really be, though? China has their own system with CIPS, so if there's any joining, it will be Russia joining that. Then if Russia joins that, the West has a pretty strong political reason not to use it, then what you end up with is a controversial, lower-quality standard in competition with an already established standard. Like sure, Firewire was sort of a thorn in USB's side, but look who won.
7373737373 5y ago
Under which circumstances, and how, is money ever physically transferred? E.g. with international transfers - unless the netting cancels exactly out, or there is an already funded account at a correspondent/intermediary bank - there has to be cash transported at some point. It'd be understandable if this only ever happened between large, international banks which smaller banks are usually customers of. Other than depositing at the central bank and providing cash withdrawals, does cash ever enter the equation?
- vmception 5y ago
  The eventuality of money being transferred is almost all done on credit. The idea that the money can be transferred sometime in the future. During periods of uncertainty and credit/trust dries up, this has been is an area where central banks have been partially stepping in by loosening credit access to spur continued trade and tradelines between financial institutions. This just keeps the credit line going, not settling the money itself. The parties always have the opportunity to try to settle it all.
- thedudeabides5 5y ago
  You are conflating 'cash' with 'money' Physical cash is like 2% of what people call money, which usually includes bank deposits. When people STOP accepting bank deposits as money, as in the Euro financial crisis, that's when things get weird. It doesn't get weird because bank X ran out of physical cash, it gets weird because at some point other banks/players stop accepting bank X deposits as money, and then what do you do?
  - 7373737373 5y ago
    I don't, and this doesn't answer my question.
    - 3np 5y ago
      If you don’t, then why would transportation of cash be needed? The answer is that it isn’t, because cash is a small subset of money. Fiat currency is debt/credit.
yeetard 5y ago
god bless the ccc
throw7 5y ago
I'm confused on exactly what the swift ban is. In the video, it seems swift is just the "protocol" between banks and the central bank of the country you're in. At the end, he says international cross-currency transfers are done through "intermediate" banks like jpmorgan that has an account from a bank in the country you want to send to. So I'm unclear what the "swift ban" did and exactly how it affected russia? Do the international transfers still use the swift protocol?
- boringg 5y ago
  As I understand it - their Russian banks endpoints have been disabled (except those who are doing gas and oil sales are still active as that hasn't yet been blocked). Think of swift as a plumbing network with specific endpoints being available - if you aren't on the network then you aren't able to transact. Probably could have used something more internet related than plumbing.
  - elevenoh 5y ago
    How are endpoints disabled? Is this the case: nodes on SWIFT network need to update their code to block an endpoint like Russian banks?
anonporridge 5y ago
What's being described here sounds very analogous to the bitcoin lightning network, as Jack Mallers describes to the IMF here, https://www.youtube.com/watch?v=jb-45m9f76I https://www.youtube.com/watch?v=jb-45m9f76I

210 points by rjzzleep 5y ago

manholio 5y ago

moasda 5y ago

Good video, it contains an explanation of SWIFT.

deleted 5y ago

[deleted]

saul_goodman 5y ago

Very interesting, and the Bankers Almanac was something I'd never heard of before. We're all used to PayPal/Stripe/etc. working instantaneously because it's already inside the US system. While SWIFT seems decrepit, it explains how much trust is involved in banking; more-so for international banking. If there was not a person in the middle of international transactions banks would face a lot more potential fraud. If your bank went out of business because they participated in some dodgy international transactions you would be rightfully pissed off at losing all your money. The Bankers Almanac also helps explain how "legit fraud" takes place, ie: how money can move around sanctions. It seems clear that by cutting Russia off from SWIFT probably stifles unrelated 3rd parties from moving around other road-blocks. Could also be something helping to clear the path to CBDC's: by removing major exit points to "Freedom Dollars"/cash.

rjzzleep 5y ago
What you consider a feature I consider a bug. Whatever was the predecessor of SWIFT was, was probably not intended to cut people off of international settlements, it was intended as a way to establish trust between otherwise untrustworthy parties. It's kinda to normal banks what the BIS(bank for international settlements) is to central banking. The very fact that one party can bully others to completely shut off parties from international banking is probably not what a lot of countries thought when they joined the system. The Chinese' CIPS actually uses the SWIFT messaging system underneath, although I imagine China to be as neutral as the US/SWIFT when their own interests are at risk. As much as I dislike Crypto what it is today, in a way the idea behind it is supposed to decentralize the trust system that is at the core of SWIFT. Otherwise you should consider that the only way you can have a truely neutral settlement party(i.e. a neutral SWIFT), is if it is run in a country that is strong enough to have a fully independent economy(already unlikely) and has enough military power to support itself. But then the latters interest in global power would probably directly interfere with the concept of neutrality.
- deleted 5y ago
  [deleted]
- elsjaako 5y ago
  You mention cryptocurrencies as an alternative. But many/most of these have an open ledger. Isn't it possible for a government to sanction certain bitcoin accounts, making any bitcoin coming from them either worthless or less valuable?
  - almostkorean 5y ago
    That is mostly correct and a big issue with crypto in its current state IMO. If government blocks your off-ramps, it's possible you could still sell via a bitcoin ATM or find someone to do an OTC trade but those are obviously not ideal. If we are talking ETH, it's possible to use zero knowledge proofs to send money and make it impossible to trace back to the source (see https://tornado.cash/ https://tornado.cash/). This also has some limitations, like you wouldn't be able to tornado 8 figures worth of ETH but certainly better than an OTC deal. It's also possible that the off-ramp exchanges could block any ETH that was sent through tornado. This gets hairy pretty quickly though, as the tornado ETH could easily be wash traded or mixed. Or it could be used legitimately, swapped for stablecoins, etc.
    - gfdfddd 5y ago
      if you were trying to block russia on ETH, and you were already blocking certain BTC addresses and it's "descendants" to the end of the blockchain... how many hours do you think ETH addresses associated with things like tornado would last? 24? 48? all of crypto ignores the real world.
      - almostkorean 5y ago
        No idea what the actual numbers look like, but I think I see your point and think that level of overreach is unlikely to happen in most scenarios. If the government could track cash as well as they could track crypto, should a business or individual that unknowingly receives illicit cash be punished? It's certainly possible but I think it would be untenable in a country where people can vote. I also didn't expect Canada to freeze bank accounts before last month, so maybe I'm off base

briodf 5y ago

I'm the co-founder of a international money transfer comparison engine, AMA if you have questions about international money transfers from a consumer perspective.

cuchoi 5y ago
Love monito.com! Congratulations on your product. Do you know why so many money transfer system have restrictions on the directions to send money? For example, Wise only allows sending in the USA (USD) -> Chile (CLP) direction but not the other way around. Also Moneygram only allows USA -> Chile and it is blocked from non-US IP adresses.
- briodf 5y ago
  Thanks! This is likely a combination a question of Money Transfer/Transmitter License & compliance, but this is not my area of expertise. A provider like Wise is licensed in the countries where it accepts customers. In this case, Wise is licensed in the US but not in Chile: https://wise.com/help/articles/2932693/how-is-wise-regulated-in-each-country https://wise.com/help/articles/2932693/how-is-wise-regulated... As it's a costly and complicated endeavour, they must prioritise the markets they operate in and must have made the business decision not to be licensed in Chile as of now. Luckily, Monito always try to find local companies filling the gap of big players, and Global66 is an interesting alternative from Chile: https://www.monito.com/send-money/chile/united-states/clp/usd/?mode=live https://www.monito.com/send-money/chile/united-states/clp/us... Moneygram is likely limited in accepting US residents with their US site for similar reasons.
bko 5y ago
Two questions: - The video talks about a suspense account, basically locking your money prior to it being netted out against others and sent to the central bank. How often do these take place? How does that relate to my checking account having money as "available" as opposed to deposited? In general, which step is responsible for money transfer taking so long? - What prevents me from going to two ATMs at exactly the same time and withdrawing my entire balance? Is there a single central location for instantaneous money transfers like ATMs?

ck2 5y ago

This is what russia is doing in response, taking their national system and making it international to end-run around SWIFT https://www.fxempire.com/news/article/central-bank-of-russia-launches-swift-replacement-with-399-users-918266 https://www.fxempire.com/news/article/central-bank-of-russia... If China joins it, that's going to be a problem. Then I wonder if the spy agencies are going to be able to monitor those networks like they do SWIFT

RC_ITR 5y ago
>If China joins it, that's going to be a problem. Will it really be, though? China has their own system with CIPS, so if there's any joining, it will be Russia joining that. Then if Russia joins that, the West has a pretty strong political reason not to use it, then what you end up with is a controversial, lower-quality standard in competition with an already established standard. Like sure, Firewire was sort of a thorn in USB's side, but look who won.

7373737373 5y ago

Under which circumstances, and how, is money ever physically transferred? E.g. with international transfers - unless the netting cancels exactly out, or there is an already funded account at a correspondent/intermediary bank - there has to be cash transported at some point. It'd be understandable if this only ever happened between large, international banks which smaller banks are usually customers of. Other than depositing at the central bank and providing cash withdrawals, does cash ever enter the equation?

vmception 5y ago
The eventuality of money being transferred is almost all done on credit. The idea that the money can be transferred sometime in the future. During periods of uncertainty and credit/trust dries up, this has been is an area where central banks have been partially stepping in by loosening credit access to spur continued trade and tradelines between financial institutions. This just keeps the credit line going, not settling the money itself. The parties always have the opportunity to try to settle it all.
thedudeabides5 5y ago
You are conflating 'cash' with 'money' Physical cash is like 2% of what people call money, which usually includes bank deposits. When people STOP accepting bank deposits as money, as in the Euro financial crisis, that's when things get weird. It doesn't get weird because bank X ran out of physical cash, it gets weird because at some point other banks/players stop accepting bank X deposits as money, and then what do you do?
- 7373737373 5y ago
  I don't, and this doesn't answer my question.
  - 3np 5y ago
    If you don’t, then why would transportation of cash be needed? The answer is that it isn’t, because cash is a small subset of money. Fiat currency is debt/credit.

yeetard 5y ago

god bless the ccc

throw7 5y ago

I'm confused on exactly what the swift ban is. In the video, it seems swift is just the "protocol" between banks and the central bank of the country you're in. At the end, he says international cross-currency transfers are done through "intermediate" banks like jpmorgan that has an account from a bank in the country you want to send to. So I'm unclear what the "swift ban" did and exactly how it affected russia? Do the international transfers still use the swift protocol?

boringg 5y ago
As I understand it - their Russian banks endpoints have been disabled (except those who are doing gas and oil sales are still active as that hasn't yet been blocked). Think of swift as a plumbing network with specific endpoints being available - if you aren't on the network then you aren't able to transact. Probably could have used something more internet related than plumbing.
- elevenoh 5y ago
  How are endpoints disabled? Is this the case: nodes on SWIFT network need to update their code to block an endpoint like Russian banks?

anonporridge 5y ago

What's being described here sounds very analogous to the bitcoin lightning network, as Jack Mallers describes to the IMF here, https://www.youtube.com/watch?v=jb-45m9f76I https://www.youtube.com/watch?v=jb-45m9f76I