- West mulls unprecedented step of hitting Russian Central
Bank with sanctions
Russia has world’s fourth largest foreign currency reservesthat it hopes will buffer sanctions blow
Major Western powers have announced the expulsion of select
Russian banks from SWIFT, the high-security banking network that makes possible
seamless financial transactions around the world. The White House and its
allies have pledged to “collectively ensure that this war is a strategic
failure” for Russian President Vladimir Putin. The United Kingdom, France,
Germany, Italy, and Canada have joined the White House in the action.
A joint statement said, "This will ensure that these
banks are disconnected from the international financial system and harm their
ability to operate globally."
It pledged “restrictive measures that will prevent the
Russian Central Bank from deploying its international reserves in ways that
undermine the impact of our sanctions,” and limiting the sale of “golden
passports” that help Russian oligarchs avoid the sanctions.
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The idea is to ensure that the damage to the economy from
the sanctions nullify any strategic gain that Putin may get by marching into Ukraine.
A CNN report says US and European officials have discussed hitting
the Russian Central Bank with sanctions, an unprecedented step for an economy
of Russia's size.
Both actions in two days
The move, which is gathering pace every passing day, has escalated
the West's attempts to isolate and punish Putin. President Joe Biden has responded
to questions why the US was not kicking out Russia from SWIFT or sanctioning
Putin personally by taking both actions within two days.
The West knows that, in Putin, Moscow has an astute
strategic thinker who must have been planning for years to neutralize the
effects of the highly predictable economic embargos any action against Ukraine could
trigger. One of the best defenses that Putin has built for Russian economy is the
world’s fourth largest foreign currency reserves of $630 billion as per
Bank data updated until 2020 shows $596 billion). This is despite the 11th
position of the Russian economy in terms of Gross Domestic Product (GDP). Putin
banks on the deep foreign exchange buffer despite the huge disruptions that the
sanctions may cause.
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However, the signs are that the U.S. and allies are willing
to escalate the disruptions to the Russian central bank level. This could make
the buffer less effective in stalling financial disruptions.
CNN reported on Saturday that Biden was considering
expelling Russia from SWIFT, but had yet to make a final decision. Fully
expelling Russia from SWIFT, or the Society for Worldwide Interbank Financial
Telecommunication, had been thought as a financial nuke option. The U.S. President’s
aides were highlighting the complications of blocking it, noting that the US
could not move unilaterally.
Combating misinformation
"That's not the position that the rest of Europe wishes
to take," Biden told reporters on Thursday.
The launch of a "transatlantic task force" to
"ensure the effective implementation of” the financial sanctions by “identifying
and freezing the assets of sanctioned individuals and companies” is reportedly
an indication of the measure of immediacy that the West feels regarding the matter.
As part of the announcement, they also promised to stepup efforts to combat rampant misinformation.
The statement leaves out the actual technical details and the
specific Russian lenders that will be cut off from SWIFT. CNN says the US and
EU are still in the midst of hammering out the final details of the action.
Sanctions of such a scale seemed impossible days ago because
of European objections. The turnaround is seen as a major escalation in
response to Russia's invasion of Ukraine.
Washington seems to have gained much ground in persuading its
European allies to join the new sanctions against Russia for its unprovoked
attack. A Biden administration official indicated the matter may have been discussed
with the Federal Reserve, which would have a stake in any decision.
White House’s initial reluctance to respond to calls from
Ukraine, and US lawmakers, to get Russia removed from SWIFT after Putin ordered
the invasion of Ukraine soon weakened as the United Kingdom, Lithuania, Estonia
and Latvia backed Kyiv's calls to cut Russia off from the network.
Germany’s change of stand from fear of a "massive
impact" on German business if Russia were banned from SWIFT to support for
restrictions in some form has been a boost to consensus building.
A joint tweet of German Foreign Minister Annalena Baerbock
and Economy Minister Robert Habeck said they were "under high pressure to
avoid collateral damage when decoupling (Russia) from SWIFT so it will hit the
right people. What we need is a targeted and functional constraint of
Market continues to fall as Russia inches towards war
Italy’s early support to expelling Russia from SWIFT has gone
a long way to rustle up international support to Ukrainian President Volodymyr
Zelensky. "Italy fully supports the European Union's line on sanctions
against Russia, including those regarding SWIFT, and shall continue to do so,"
Prime Minister Mario Draghi said in a message to Zelensky.
The U.S. and its allies are closely watching the resistance
President and administration officials have made clear, we are focused on coordinating
with allies and partners to impose further costs on Russian President Vladimir
Putin for his war of choice."
Europe is weighing the damage that could happen to its
bigger economies on removing Russia from SWIFT because of the huge challenges
to their energy economy. The sanctions could hit the Russian companies but
buyers of Russian oil and gas could also be affected by them.
The US sanctions will affect Moscow's banking, technology
and aerospace sectors. Washington has also placed sanctions directly on Putin and
Russian Foreign Minister Sergey Lavrov.
Image courtsey: rferl.com
