U.S. and Allies Are Close to Putting Financial Choke on Russia
Look. When people in finance talk about the “nuclear option” for sanctions, theyre talking about SWIFT. And this weekend, the US and European allies finally pulled the trigger.
On Saturday, the White House announced that the US, European Commission, France, Germany, Italy, UK, and Canada agreed to remove selected Russian banks from the SWIFT messaging system. Japan joined on Sunday. This is a big deal and Im gonna explain why.
SWIFT — thats the Society for Worldwide Interbank Financial Telecommunication — is basically how banks talk to each other internationally. Over 11,000 financial institutions in 200+ countries use it. When you cut a country off from SWIFT, you’re essentially cutting them off from the global financial system. They cant easily send or receive international payments.
Russia has the second highest number of SWIFT users after the US. About 300 Russian banks depend on it. The Treasury Department says these measures will “target the core infrastructure of the Russian financial system.”
Heres what else is happening: The allies are also going after Russia’s central bank reserves a move that mirrors America’s push to bring manufacturing back home. We’re talking about $630-650 billion in foreign currency reserves that Putin was counting on to cushion the blow of sanctions. If those get frozen, Russia loses its safety net.
The immediate impact? The ruble crashed over 20% on Monday. The Russian central bank jacked interest rates from 9.5% to 20% trying to stop the bleeding. Russian citizens were lining up at ATMs over the weekend trying to withdraw cash.
Now I’ll be honest — Europe dragged their feet on this initially. They have $30 billion in exposure to Russian banks. Germany imports a ton of Russian natural gas. But Ukraine getting invaded apparently changed the calculus. NPR reports that even historically reluctant countries like Germany, Italy, Hungary and Cyprus agreed not to block the SWIFT ban.
Not every Russian bank is getting cut off though. Sberbank and Gazprombank — two of the biggest — are staying connected for now because Europe still needs to pay for Russian energy. Its a partial chokehold, not a complete one.
The question everyone’s asking: Will this actually stop Putin? Iran lost half its oil export revenue when they got kicked off SWIFT in 2014. But Russia has been preparing for this since Crimea. Theyve built their own system called SPFS. Its not as good as SWIFT but it exists.
One things for sure — the Russian economy is about to get a lot worse. Whether thats enough to end the war in Ukraine… we’ll see.
