A Former SWIFT Insider on Financial Warfare, the Fate of the Dollar, and Bitcoin

A Former SWIFT Insider on Financial Warfare, the Fate of the Dollar, and Bitcoin

One of the great things about Casey Summits is that you get to meet some truly fascinating people among the attendees. The opportunity to network with successful, like-minded people is one that should not be missed.

And this year’s Summit was no different. I had the pleasure of meeting many interesting people. Among them was Tjerk Veenstra.

Tjerk spent nearly 30 years with SWIFT (Society for Worldwide Interbank Financial Telecommunication) as one of its most senior managers.

SWIFT is truly integral to the international financial system, specifically in transferring money from a bank in country A to a bank in country B. More than 10,500 financial institutions and corporations in 215 countries use SWIFT millions of times every day. We’ll get into more detail below.

Suffice to say, it behooves you to appreciate how SWIFT works to better understand some of the big-picture trends in the world today—like the decline of the dollar as the world’s premier currency, financial warfare, geopolitics, and the emergence of game-changing technologies like Bitcoin and cryptocurrencies. Tjerk and I will discuss all of these things.

It’s a rare peek into the thinking of someone who was at the center of arguably one of the most important organizations in the international financial system. I’m happy to bring International Man readers this timely discussion.

Until next time,

Nick Giambruno
Senior Editor

Nick Giambruno: Welcome, Tjerk, and thank you for joining us. A lot of people have never heard of SWIFT. So why don’t we start with the basics and telling us what it is and where it came from?

Tjerk Veenstra: I like to refer to SWIFT as the dot-com of the 1970s, when it was conceived in Europe. Building SWIFT in the 1970s was like building an Internet for the global banking system decades before the actual Internet was available. Back then, communications systems were telephone and telex systems and nothing else.

It all started in the early 1970s when globalization really got underway. Financial institutions in Europe and around the world had trouble keeping up with the growing pace of international payments traffic among banks as cross-border trade grew. At the time, there was only telex and old-fashioned paper mail to transmit international payment messages between banks in different countries, and they quickly became insufficient. It was a manual process, to say the least.

Compounding that was other factors. Here in Europe you have a wide diversity of languages. On top of that, each nation had its own standards for these payment messages in terms of account numbers, names, and so forth. In short, it was a complicated and slow process to move money internationally back then.

To solve this problem, a few original thinkers from banks in Scandinavia, Holland, and Belgium got together. They looked to aviation as a template for the emerging SWIFT system. Airline companies back then had a global messaging system that was run on a cooperative basis. The European banks came to the conclusion that they could take the global systems used to relay messages in aviation and create a similar global and standardized messaging system for banks that would be much more efficient than the existing manual and unstandardized telex and paper methods. So that’s basically how SWIFT started in the early 1970s.

SWIFT started out as a European initiative, but the idea was to connect the entire world with an efficient global financial messaging system. And now if we fast forward to today, we see that the entire world is connected to SWIFT.

One word that you see used on the SWIFT website is “neutrality.” SWIFT is neutral. It’s a technological infrastructure. And it is for anyone anywhere in the world who makes use of that infrastructure. All the currencies in the world are embedded in the SWIFT system. So it is neutral because, again, SWIFT is a vehicle. It takes messages from A to B, and in all its simplicity, that’s all it does.

Nick: Pretty much anyone who has had to send money internationally has used a SWIFT code. Explain what the SWIFT code is.

Tjerk: The SWIFT code is basically the address that identifies an end party. As a user of the Internet, you have an IP address. A SWIFT code is like a bank’s IP address for international payment information. The SWIFT code was simply a feature of the system that was set up in the 1970s. So in order to create a global network for banks, each bank needed to have an address, and that is what is called the SWIFT code.

Nick: Let’s move on to an important topic that happened recently. You mentioned how SWIFT is neutral, but recently, somehow the US was able to kick Iran out of SWIFT in 2012. Can you talk about that?

Tjerk: Well, first of all, it was totally unprecedented. Since 1977, the mission of SWIFT was to connect the entire world. Not to disconnect anybody. And today there are around 215 countries in the world.

Before Iran, SWIFT had never ever disconnected a country because it does not have the mandate to do that. The organization itself is not allowed to do that. Its purpose is to connect everybody in a neutral fashion.

SWIFT’s infrastructure does not know physical geographical borders. Technically there are no “countries” per se in the SWIFT system; there are just SWIFT codes, a collection of which forms a country.

Nick: As far as I can tell, the US was able to kick Iran out of SWIFT by pressuring the European Union, and because SWIFT is located in Belgium, which is part of the European Union, this is how it happened.

Tjerk: Yes, that appears to be the case, but this is where the politics come in, and that’s why it is unprecedented.

Nick: So, it appears that SWIFT has become politicized and is no longer as neutral as it once was—because as we’ve seen, the US used it as a financial weapon against Iran and is threatening to use it against Russia.

Tjerk: What you see is that the consequences of geopolitics can no longer be avoided. That is why I follow writers like James Rickards.

If I look at the SWIFT organization itself and its management, it’s a challenge to remain neutral because you are being pushed one way or the other by powerful forces.

SWIFT is a cooperative society with member countries and member banks. The highest level of authority in SWIFT is the international board of directors, and they represent the contributing members on a share-based system. The more you use SWIFT, the more shares—and influence—you get. That’s where the decisions are being made.

SWIFT is also based in Belgium, which makes it subject to the rules and regulations of the Belgian Central Bank and the European Union.

But SWIFT is trying to remain as neutral as possible. On its website, SWIFT states that it is resisting the pressure to act against Russia. Here is what was written:

SWIFT regrets the pressure, as well as the surrounding media speculation, both of which risk undermining the systemic character of the services that SWIFT provides its customers around the world. As a utility with a systemic global character, it has no authority to make sanctions decisions.

Any decision to impose sanctions on countries or individual entities rests solely with the competent government bodies and applicable legislators. Being EU-based, SWIFT complies fully with all applicable European law.

SWIFT will not respond to individual calls and pressure to disconnect financial institutions from its network.

Nick: It’s interesting that SWIFT being used as a political weapon is new. The US certainly has always had political enemies around the world, like Cuba, the Soviet Union, North Korea, and so forth. Was there ever any pressure in the past to kick out Cuba or to kick out the Soviet Union or to kick out North Korea or countries like this?

Tjerk: Not that I’m aware of. There have been debates about the neutrality in the past, for example, when it came to apartheid South Africa. But up until Iran, the SWIFT organization has always found a way to mitigate those political complications and maintain its neutrality.

Nick: The Russians are looking at this, and they see that the Americans have kicked out Iran and are threatening to kick them out too. Many have speculated that the BRICS countries might seek to create their own SWIFT system. Do you think that is a possibility?

Tjerk: I do not think that the consequences of those statements are fully understood. From a political perspective, yes, it could make sense for them to create their own system. But practically speaking, that is another matter. I personally witnessed how SWIFT developed over the decades. SWIFT is deeply embedded around the world. It’s not just a messaging system, it’s a piece of technology and a global set of standards. And building a new SWIFT would be akin to setting up a new Internet.

You would have a second set of standards if there were a BRICS system, and they would have to be able to interact with the current SWIFT standards. And then you’re going to have to ask the rest of the world to adopt these new BRICS standards, and that may not be easy or quickly implemented.

Nick: That is all true. But if Russia were to be kicked out of the SWIFT system, it could force it out of necessity to create its own parallel system regardless of the difficulties. It will be interesting to see what happens. Anyway, let’s switch gears and talk about some of the misconceptions of SWIFT. Some have characterized it as a nefarious organization.

Tjerk: SWIFT has sometimes ridiculously been referred to as “the beast of Belgium” or as a sinister organization with a sinister secret mission. I have seen some blogs and websites with those connotations. But the reality is that there is nothing sinister at all about SWIFT. The organization is open and transparent.

The people who created SWIFT in the 1970s were really top-notch people. Everything that we did, no one had done before. We solved a very real problem and introduced a new global infrastructure and standard. SWIFT was a sort of Internet for banks decades before the actual Internet. That’s why I like to refer to SWIFT as the dot-com of the 1970s.

Nick: Where do you see the future of the US dollar as the world’s reserve currency?

Tjerk: What I witness is an erosion of the role that the dollar had in the past decades. You see that in the activity on SWIFT. The Chinese renminbi has increased threefold in the past two years in SWIFT traffic. There definitely is an emergence of new currencies, and the erosion of existing currencies. And personally, I think that will continue.

Nick: What are your thoughts on Bitcoin and cryptocurrencies?

Tjerk: I think they are interesting. Bitcoin or any other cryptocurrency still has to prove itself, but it definitely can be a disruptive technology. Cryptocurrencies may impact systems like SWIFT. I think what we’ll see in the next 10 years is going to be groundbreaking.

Nick: Thank you for your time, Tjerk, we covered a lot of territory.

Tjerk: Thank you, Nick.

Editor’s Note: Doug Casey’s International Man is all about helping you cut through the smoke and mirrors to better understand the big-picture trends so that you can make the most of your personal freedom and financial opportunity around the world. The free IM Communiqué is a great place to start.

Nick Giambruno

Nick is Doug Casey’s globetrotting companion and is the Senior Editor of Casey Research’s International Man. He writes about economics, offshore banking, second passports, value investing in crisis markets, geopolitics, and surviving a financial collapse, among other topics. He is a CFA charterholder. In short, Nick’s work helps people make the most of their personal freedom and financial opportunity around the world. To get his free video crash course, click here.

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