This includes a block on Russian access to the global system and restrictions on its central bank as a retaliation to its invasion in Ukraine.
These measures were jointly announced as part of a new set of financial sanctions that “hold Russia accountable and collectively ensure this war is a strategic fail for (Russian President Vladimir Putin).” The restrictions on central banks are designed to restrict Russia’s ability support the ruble in the face of tightening Western sanctions. They also target more than $600billion in Russian reserves. They will also severely limit Russia’s ability import and export goods.
The cumulative sum of all the actions taken by the West since Russia invaded could amount to some the most severe sanctions imposed on any country in modern history.
Officials from the United States claimed that Saturday’s actions were designed to cause the ruble to “free fall” in order promote inflation in Russia. They pointed out that Russia’s currency has fallen to its lowest point against the dollar in its history, and its stock market had its worst week ever.
Saturday’s action includes removing key Russian banks from the SWIFT financial messaging network. This system moves billions of dollars daily around more than 11,000 financial institutions worldwide. Officials said that the finer points of the sanctions were still being worked out as they try to minimize the impact of restrictions on other economies, and European purchases, of Russian energy.
Both the Atlantic allies and the Russian side considered the SWIFT option when Russia invaded Ukraine’s Crimea in 2014. They also supported separatist forces in eastern Ukraine. Russia declared that the act of kicking it out SWIFT would constitute a declaration war. After being criticized for their weak response to Russia’s 2014 aggression, the allies abandoned the idea. Russia has since tried to create its own financial transfer system with limited success.
The U.S. has successfully persuaded the Belgia-based SWIFT system in order to expel Iran from its network. This was due to Iran’s nuclear program. However, kicking Russia from SWIFT could cause economic damage to other countries, such as those of key allies Germany and the U.S.
The West announced Saturday that SWIFT was disconnected. This leaves Europe and the United States with the possibility of increasing penalties.
Ursula von der Leyen, President of the EU Commission, announced the measures in Brussels. She said that the bloc would also “paralyze Russia’s Central bank’s assets” to prevent its transactions from being frozen. She added that cutting several commercial banks of SWIFT “will ensure these banks are disconnected with the international financial system” and hinder their ability to function globally.
She said that cutting off banks will prevent them from transacting most of their international financial transactions and effectively stop Russian exports and imports. “Putin has set out to destroy Ukraine. But what he is actually doing is destroying the future for his country.”
It was difficult to get the EU to sanction Russia via SWIFT. This was due to the fact that EU trade with Russia totalled 80 billion euros. This is about 10 times more than the United States which was an early advocate of such measures.
Germany had resisted the measure because it could be very damaging to them. Annalena Baerbock, Foreign Minister, stated that after Russia’s shameless attack, “we are working hard to limit the collateral damage of decoupling Russia from SWIFT so it hits the right people.” We need to restrict SWIFT’s functionality and target it.
The allies also announced that they would take measures to stop the sale of citizenship, so-called golden passports. These passports allow wealthy Russians to become citizens of our countries and have access to our financial system.
This week, the group announced that a transatlantic taskforce was formed to ensure that sanctions against Russia and other sanctions are effectively implemented through asset freezes and information sharing.
Rachel Ziemba is an adjunct senior fellow at Center for a New American Security. She stated that even though a total SWIFT ban was implemented, these measures would still be “painful to Russia’s economy.” These measures will make transactions more difficult and complicated than the earlier ones this week.
Ziemba said that the extent of damage the sanctions cause to the Russian economy will depend upon which banks are restricted and what measures are taken by the Central Bank to limit their ability to operate.
“Regardless, these escalating sanctions and removing banks SWIFT from SWIFT, restrainting the Central Bank will all make it harder to obtain commodities from Russia and will increase pressure on the financial markets.”
