## The SWIFT Code: How the Global Payment System Works

The SWIFT system represents the fundamental infrastructure governing money transfers between financial institutions worldwide. Managed by an international consortium of banks, this mechanism fully standardizes cross-border financial communications, eliminating any ambiguity in the international settlement process.

### The Structure of the SWIFT Code and the BIC System

The SWIFT code, formally known as Business Identifier Code (BIC), is a unique eight-character identifier assigned to each participating bank in the network. The structure is strictly standardized according to the international norm ISO9362: the first four characters identify the banking institution (for example, HSBC for HSBC, CITI for Citibank), while the remaining four indicate the geographical location of the branch (such as BKCHCNBJ for the Beijing headquarters of the Bank of China).

This system allows for extremely precise communication. When a bank performs a cross-border operation, it specifies the sender bank's name, the recipient bank's name, and the currency according to the ISO 4217 standard (USD, EUR, JPY, etc.), making the process completely transparent and verifiable.

### An Analogy with Other International Systems

The operational principle of SWIFT finds fascinating parallels in other international organizations. The International Air Transport Association (IATA) operates similarly, assigning three-letter identification codes to airports worldwide (LAX for Los Angeles, HKG for Hong Kong). Likewise, ICANN manages internet addresses and national identifiers (JP for Japan, UK for the United Kingdom).

All these systems share a fundamental principle: global standardization eliminates operational frictions and enables a smooth circulation of goods, people, and money across national borders.

### Scope and Penetration of the System

Currently, SWIFT provides services to over 10,000 financial institutions distributed across almost all countries and regions of the planet. However, the use of the system is not mandatory for all banks. Institutions with purely domestic operations or with a sufficiently extensive international branch network can manage international transactions independently without resorting to SWIFT.

### The Evolution in China and the Limitations of the Renminbi

When China had not yet fully adopted international standards, the SWIFT system remained essentially marginal for domestic financial institutions. Subsequently, major Chinese banks obtained their own BIC codes according to SWIFT specifications, allowing them to participate directly in the international clearing network. This development accelerated the integration of China's financial system into the global circuit.

Despite these advances, the renminbi remains subject to strict restrictions on external circulation. As a result, the volume of RMB transactions on SWIFT accounts for less than 1% of the network's total traffic, and most Chinese international operations continue to use the US dollar as the settlement currency.

### The "Winner Takes All" Principle

The SWIFT system perfectly illustrates the advantage of the first mover in the context of international standards. Those who join the system first gain greater decision-making power, and as new participants join, the network becomes progressively more valuable. Paradoxically, exclusion from SWIFT can become a tool of economic isolation, making it difficult for sanctioned institutions to complete international transactions.

### The Chinese Alternative: CIPS

China has developed an alternative system called China International Payments System (CIPS), specifically designed for cross-border renminbi operations. This system represents an attempt to reduce dependence on Western infrastructure and promote the internationalization of the Chinese currency.

The main obstacle remains the controlled nature of the renminbi, which does not circulate freely in international markets. As long as this restriction persists, the global adoption of CIPS will face significant limitations, despite the involvement of financial institutions from various countries in the system.