Today The White House and the European Union jointly commited to exclude several Russian Banks from the SWIFT inter banking code system.
At the same time, both EU and USA commit to imposing restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions.
Ursula von der Leyen (President of the EU Commission) explained in a video published this same night on Twitter that the objective of these two new sanctions and the pool of meassures discussed today between the USA and the EU is avoid that Russia can finance its war machine.
SWIFT removal sanction may cause devastating effects on Russian economy, but not at zero cost
The cutoff would terminate or at least make almost impossible all international transactions for the banks excluded , can trigger currency volatility, and cause massive capital outflows.
The removal from the SWIFT messaging system will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally.
Following the estimations of former Finance Minister Alexei Kudrinin 2014 and quoted by Dra. María Shagina (Post Doctoral Fellow at the Center for Eastern European Studies -CEES- in Zurich) in her article titled “How Disastrous Would Disconnection From SWIFT Be for Russia?” this meassure alone would cause a shrink of about a 5% in Russia’s GDP.
When Iranian banks were removed from the SWIFT the country lost about a 50% of the revenues coming form its oil exports and about a 30% of its foreign trade, points Shagina.And Russia is heavily reliant on the SWIFT system due to its hidrocarbon exports that are denominated in US dollars.
But leaving aside the losses related to the exports, there are other two major effects of such removal: currency volatility and massive outflows of capitals from Russia to elsewhere.
But this kind of meassure will have also a cost for some of the economies most interconnected with Russia, such as that of Germany or the USA and meke it difficult for creditor countries to have Russian debts paid.
Can Russia paliate in some way the removal of its banks from the SWIFT system?
Following an article published on this matter by María Shagina (fellow at the Center for Eastern European Studies -CEES- at the University of Zurich). Moscow has already tried to take some steps to avoid in full or at least in part a decission like the one the USA and the EU are committing today since the UK asked to impose such a sanction on the country in 2014.
Those steps are mainly: implementing the National Payment System (MIR); using cards co-branded with the international Maestro system, Chinese UnionPay and Japanese JCB; the System for transfer of Financial Mesages (SPFS) set up by the Central Bank of Russia in 2014 and using the CIPS (Chinese Cross Border Interbank Payment System).
Leaving aside the co-branding option and the fact that the CIPS could become an option for regional transational payments in Asia, the other two systems would no way paliate for Russia in the field of trans national payments (exports) at least in the needed meassure the removal from the SWIFT, María Shagina in her article underscores (I provide a link below to this article that I fully recommend reading).
There’s another option, the INTEX, but it use deppends just on EU criteria. Devoted exclusively to humanitarian trade, INTEX has been established by the European Union as an alternative of SWIFT to avoid the sanctions imposed unilaterally by the USA or any other country.
Crypto money to avoid the SWIFT removal?
May a Digital Ruble be the gate for Russia to avoid the SWIFT removal?. Might be at least in part but never in full.
Russia planned to test the Digital Ruble in Crimea last year, but since March 2018 the US Office of Foreign Assets Control applies the same treatment to ordinary monetary transactions and those made using digital currencies in the field of sanctions compliance, warns Shagina.
Anatoly Ksakov (President of the Financial markets at the Russian State Duma) said to State Russian Media last March 2021 that he thought that an important part of national liquidations would be executed through the digital Ruble by 2023 or 2024 and first test in all Russia was at first planned to be launched in 2022.
The Digital Ruble was initially meant to dettach then Russian economy from the US dollar patron.
Other sanctions to be imposed and steps to be taken, including the disrupt of the movement of ill-gotten gains and fight against disinformation
The joint communication reffers to the commit to acting against the people and entities who facilitate the war in Ukraine and the harmful activities of the Russian government. Specifically, we commit to taking measures to limit the sale of citizenship, so called golden passports, that let wealthy Russians connected to the Russian government become citizens of our countries and gain access to our financial systems.
And the meassures will become actually in force, not only adopted, because both the USA and EU commit to launching this coming week a transatlantic task force that will ensure the effective implementation of our financial sanctions by identifying and freezing the assets of sanctioned individuals and companies that exist within our jurisdictions.
As a part of this effort, says the communication, we are committed to employing sanctions and other financial and enforcement measures on additional Russian officials and elites close to the Russian government, as well as their families, and their enablers to identify and freeze the assets they hold in our jurisdictions.
Bothe the EU and the USA will also engage other governments and work to detect and disrupt the movement of ill-gotten gains, and to deny these individuals the ability to hide their assets in jurisdictions across the world.
Finally, the USA and the EU will step up their coordination against disinformation and other forms of hybrid warfare.
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Related external links:
The communication on the commitment to impose Russian banks SWIFT exclusion by the President of the EU Commission Ursula von der Leyen (video)