“We are committed to ensuring that selected Russian banks are removed from the SWIFT communication system. This will ensure that these banks are disconnected from the international financial system, which will affect their ability to operate globally, “said a joint statement by the European Commission, Germany, France, Italy, Britain, Canada and the United States.
After days of rejection, Germany nodded at the tougher action against Russia. SWIFT announced its agreement to restrict Russia’s access to the international payment processing system in a joint statement by the Ministry of Foreign Affairs and Economy. But they demand a restriction on Russia’s approach that “only the real ones” will be affected. “We need targeted and functional limitations of SWIFT,” the statement said.
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Losing access to finance abroad would cripple Russia’s central bank as the bank seeks to support the ruble in the foreign exchange market by selling hard currency. The direct intervention, which was announced this week when Putin ordered the army to attack Ukraine, marks the first intervention by the Russian central bank in the market since 2014.
“Sanctions against Russia’s central bank are likely to have a dramatic impact on Russia’s economy and banking system, similar to what we saw in 1991,” said Elina Ribakov, deputy chief economist at the Institute for International Finance (IIF). “It would probably lead to a massive withdrawal of money from banks and to dollarisation, a sharp sell-off and the depletion of reserves – and perhaps to the complete collapse of the Russian financial system.”
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Russia’s central bank has about 22 percent of its gold reserves, most of which it holds in Russia, to keep them out of Western sanctions. About 13 percent of the bank’s stock is in Chinese yuan. According to Credit Suisse Group analyst Zoltan Pozsar, Russia still has about $ 300 billion in foreign currencies outside its homeland. Enough to disrupt the money markets in the event of sanctions.
SWIFT was established in 1973 and is headquartered in Belgium. It is considered a kind of framework for seamless international payments and connects 11,000 banks. The system is overseen by the Belgian central bank in cooperation with central banks in the US and the UK.
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