Explaining the history of how money is transferred internationally
SWIFT facilitates more than 45-million financial messages and US$5 trillion in money transfers per day (Getty Images/filadendron)
People have been moving money from one place to another for as long as commerce has existed, but the modern day financial system essentially began in 1858 when two battleships in the middle of the Atlantic Ocean connected two ends of a 4,000 kilometre-long cable, allowing Europe and North America to communicate via telegraph. Since then, hundreds of undersea cables have been laid, which now serve as the backbone of the internet and the messaging systems used across the financial world.
At first, the system was slow and rudimentary with every bank having their own instructions and ways to transfer funds. As technology became more sophisticated, organizations started creating standards for these financial instructions, but it wasn’t perfect: Telex, which was used from the 1940s to the 1970s, required the sender of funds to explicitly state what country, city, branch and account a payment should go to. It was a slow process prone to human error. In 1973, 239 international banks created SWIFT—the Society for Worldwide Interbank Financial Telecommunications—a faster and safer payments network that uses unified and easy-to-understand codes to instruct banks on how to transfer money. SWIFT doesn’t move actual dollars—it’s simply a messaging network that instructs banks and other institutions on how money should be transferred from one place to another.
With SWIFT now facilitating more than 45-million financial messages and US$5 trillion in money transfers per day, the system clearly works: it’s allowing international commerce to happen on a wide and rapid scale. But, given how much money is getting moved around the world, it’s not surprising to find out that some of those funds are from ill-gotten gains. According to the United Nations Office on Drugs and Crime, about US$2 trillion is laundered every year, equal to about two to five per cent of the world’s GDP. But it’s likely a lot higher than that, say most experts.
STAYING WITHIN BOUNDS
Read about the ways our global financial systems are interconnected and the importance of remaining compliant to Canada’s AML rules.