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In punishment for its invasion of Ukraine, the United States, the European Union, and the United Kingdom agreed to impose crushing sanctions on Russia’s financial sector, including a ban on access to the global financial system and, for the first time, limitations on its central bank. The sanctions were announced at the same time on Saturday as part of a new round of economic sanctions aimed at “bringing Russia to account” and “ensuring that this war is a strategic disaster for (Russian President Vladimir) Putin.”
The central bank limitations target the Kremlin’s more than USD 600 billion in reserves, with the goal of limiting Russia’s capacity to maintain the currency in the face of growing Western sanctions.
The moves declared by the West since Russia began the invasion could amount to some of the worst sanctions imposed on any country in recent times, and if completely implemented as intended, would seriously hurt the Russian economy and severely limit its capacity to buy and export commodities.
US officials said Saturday’s actions were designed to throw the ruble into “free collapse” and foster soaring inflation in the Russian economy. They underlined that previously announced measures have already had an impact on Russia, causing its ruble to fall to its lowest level against the dollar in history and giving its stock market its worst week on record.
The move on Saturday involves removing important Russian banks from the SWIFT financial messaging system, which daily transports tens of billions of dollars between more than 11,000 banks and other financial institutions around the world.
Over the weekend, officials said the small print of the sanctions was still being sorted out as they worked to reduce the impact of the limitations on other economies and European purchases of Russian energy.
Allies on both sides of the Atlantic considered the SWIFT option after Russia invaded and annexed Ukraine’s Crimea and backed separatist forces in eastern Ukraine in 2014. At the time, Russia declared that removing it from SWIFT would be equivalent to declaring war.
The concept was cancelled after the allies were chastised for responding too weakly to Russia’s aggressiveness in 2014. Since then, Russia has attempted, with limited success, to build its own financial transmission system.
The US has previously succeeded in persuading the Belgium-based SWIFT system to expel a country — Iran — due to its nuclear programme. However, barring Russia from SWIFT might harm other economies, particularly those of the United States and its crucial partner, Germany.
The West’s withdrawal from SWIFT announced on Saturday is just partial, leaving Europe and the United States opportunity to increase fines later.
In announcing the sanctions in Brussels, EU Commission President Ursula von der Leyen stated that the bloc will also “paralyse the assets of Russia’s Central Bank” so that its operations would be stopped. She noted that disconnecting numerous commercial banks from SWIFT “would ensure that these institutions are removed from the international financial system and impair their capacity to function globally.”
Germany, in particular, had objected to the idea since it could have serious consequences for them. However, Foreign Minister Annalena Baerbock stated in a statement that “Following Russia’s heinous act… we are working hard to prevent the collateral harm of detaching (Russia) from SWIFT so that it reaches the proper people. What we require is a focused set of SWIFT functional constraints.”
As another action, the partners pledged to “take measures to limit the sale of citizenship — so-called golden passports — that allow affluent Russians connected to the Russian Kremlin to become citizens of our nations and get access to our financial systems.”
The group also announced this week the formation of a transatlantic task team to guarantee that these and other sanctions against Russia are effectively implemented through information exchange and asset freezes.
According to Rachel Ziemba, an adjunct senior fellow at the Centre for a New American Security, despite a comprehensive SWIFT ban, “These sanctions will continue to be unpleasant for Russia’s economy. They amplify the measures enacted earlier this week by making transactions more cumbersome and difficult.”
According to Ziemba, the severity of the sanctions’ impact on the Russian economy will be determined by which banks have been restricted and which measures are taken to limit the Central Bank’s ability to operate.
