For all of those of us, myself included, who thought that the sanctions laid out by ally governments around the world on Russia were not strong enough, I think we are seeing that tide turn.
Russian banks cut off from Swift and Central Bank cut off from international reserves
Over the weekend, western allies and the US announced that they will place sanctions on Russia’s central bank and remove some of the country’s lenders from the Swift global financial messaging system, in their harshest response yet to the invasion of Ukraine.
In a joint statement the US, UK, Canada, France, Germany, Italy and the European Commission said they would prevent the Russian central bank from using its international reserves to undermine broader sanctions.
Central Bank Punished
“[Vladimir] Putin’s government is getting kicked off the international financial system,” said a senior US official, who added that the measures would push the Russian currency “into freefall”.
This has indeed been the truth, the rouble fell juts short of 30% and the Russian central bank has been forced to raise the interest rate to 20% to try to discourage Russians from forming queues at empty ATMs to withdraw money.
The western leaders also said they would eject some unnamed Russian banks from Swift, ensuring they are “disconnected from the international financial system” and harming their ability to operate.
They also vowed to crack down on “golden passports” that let wealthy Russians buy citizenship, and to impose sanctions on officials and elites close to the government.
The joint action on sanctions is an escalation in the west’s financial and economic response to Russia’s invasion. “We will hold Russia to account and collectively ensure that this war is a strategic failure for Putin,” the leaders said in their joint statement.
The Biden administration official said Putin had turned Russia into a “global economic and financial pariah”. “What we are committing to do here is to disarm the central bank,” the official said, adding that the action would affect all of the institution’s roughly $630 billion in foreign reserves.
“Without being able to buy the rouble from western financial institutions… Putin’s central bank will lose the ability to offset the impact of our sanctions,” he said. “The rouble will fall even further, inflation will spike and the central bank will be left defenceless.”
European Commission president Ursula von der Leyen said she would propose to EU leaders that they should “paralyse the assets of Russia’s central bank” to freeze its transactions and make it impossible to liquidate assets.
Josh Lipsky, director of the Atlantic Council’s Geo-economics Center who previously worked at the IMF, said before the announcement that hitting the central bank would be an “extraordinarily significant and damaging move” to Russia’s economy.
“A G20 central bank has never been sanctioned before. This is not Iran. This is not Venezuela,” said Lipsky.
Swift Blow
Edward Fishman, a former US official now at the Center for a New American Security, said it could present a “devastating blow” to the Russian economy that would eclipse the significance of a Swift ban.
The US has previously sanctioned the central banks of only Iran, Venezuela and North Korea. A US official declined to say if Washington would sanction the central bank further by adding it to the Treasury’s “Specially Designated Nationals” list, which Fishman described as “the single most impactful sanction that you could apply to Russia, and you could do it with a stroke of the pen”.
Cutting banks out of the network will make it more difficult for Russians to make cross-border transactions. Swift said on Saturday that it was “engaging with European authorities to understand the details of the entities that will be subject to the new measures, and…preparing to comply upon legal instruction”.
In a statement released ahead of the EU’s decision, Sber, VTB, Alfa Bank and “Otkritie” sought to reassure customers: “It is of fundamental importance to us that millions of Russian families, notwithstanding their servicing bank, feel confident about the future, today and always, knowing their funds are safe.
“We believe it important to stress that each of the banks continues to provide services as normal and does all that is necessary to peacefully go through this challenging period.
The banking community is prepared for various scenarios: we have enough liquidity to satisfy the demand, there are no restrictions for cash withdrawal either in ATMs or the banks’ offices. Amid the sanctions we coordinate our work, and together with the Central Bank ensure uninterrupted and steady operations.”
For more information and statistics on the Russian Banking and Payments Sector CLICK HERE
The post Russian banks cut off from Swift and Central Bank from international reserves appeared first on Payments Cards & Mobile.
