SWIFT essentially is an organisation it is basically a cooperative of banks which is set up in Belgium. SWIFT essentially stands for Society for Worldwide Interbank Financial Telecommunication that is the expansion of SWIFT. Initially, it was started in 1973 and 1977 post that it has been made live and using this particular system, the banks as well as financial institutions throughout the world keep on sending messages to each other. Now, what is the importance of SWIFT let's take a very simple example to understand the importance here, imagine here is a particular person A he wants to send certain amount of money to let's say USA, he cannot directly send it to USA, what he generally does is the bank where A has a bank account, initially it will send the transmission or a signal through the SWIFT system itself and once this particular signal or let's say the message reaches the receivers bank in USA and the receiver bank approves this particular message only then the financial transaction would be conducted. Under SWIFT, we only send the messages we do not send money, we are sending encrypted messages, which is received by the receiver back once it is approved only then we will transfer the funds.
Let's say from the Indian bank to the USA bank like this, and that is the role that is played by the SWIFT system in the global market. Now, over a period of time, a lot of these particular countries which are conducting trade, which are sending money from one country to another country or receiving remittances, etc they're essentially using this particular SWIFT system to transfer funds essentially after getting the confirmation from the receiver side or let's say the receiver institution and if you want to have a trade between any two countries whenever you want to conduct a trade or whenever you want to send remittances from one country to another country the SWIFT system plays a very important role.
The SWIFT system will transmit the message send the message to let's say, the receiver bank, the receiver bank cannot accept the message cannot approve the message and if they cannot approve the message, essentially what will happen, the funds cannot be transferred from this particular bank to this bigger bank. The Western countries or let's say the allies of Ukraine have come together have started imposing a lot of these project economic sanctions on Russia and one of the stringent economic sanctions that has been ever been imposed on Russia is the western countries are saying that these institutions in Russia will not be part of SWIFT system anymore and when these particular let's say institutions are removed out of the SWIFT system, they cannot send or receive the messages henceforth and what is the likely impact of this, the trade between Russia and the rest of the world would be crippled.
I'm not saying it will completely stop because there are many other modes but definitely yes, the trade between Russia and other countries will definitely be crippled and that is the precise reason. Very recently even RBI is thinking as to how essentially to conduct trade with Russia. Now, since the Russian banks or let's say institutions have been removed out of the system, how do we transmit the funds is a major question. Whenever a financial institution or let's say a bank is covered under this particular system, it is given a business identification Code BIC. For example, let's say hypothetically, here is one bank in India, I will go to that particular bank, I want to transfer let's say $100 to my friend who's sitting in USA, I will provide the bank account details of my friend, what is the name I will provide that is the account holders name I'll provide in addition to this, I will also have to provide what is the BIC of the bank where his account is there that is either 8 digit or 11 digit identification code, only then the funds can be transferred from one country to another country like this and that is the importance of the SWIFT system.