The European Union has “decided” to isolate Russia from the international financial system, including by blocking some banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the messaging network that underpins global financial transactions.
EU sanctions Russian banks Swift
As a result of the decision, the assets of Russia’s central bank will also be frozen, limiting Russia’s ability to access its overseas reserves.
In a joint statement, EU countries, the US and their allies stated that the intention was to “further isolate Russia from the international financial system.”
It is also worth noting that these joint sanctions, which Russia relies heavily on the Swift system for its key oil and gas exports and should be enforced, are the most drastic measures ever implemented over Russia’s invasion of Ukraine.
What is Swift and why is it so important to ban Russia?
Swift, the “Global Association for Interbank Financial Communications,” is a secure messaging system that enables fast, cross-border payments and international trade. However, although Swift plays a very important role in supporting the global economy, Swift does not have the authority to take sanction decisions on her own.
Headquartered in Belgium, the association facilitates transactions between more than 11,000 banks and financial institutions worldwide. Expulsion from Swift is seen as a serious blocking move for Russia, as almost all banks use this system. Measures adopted by the US, UK, Europe and Canada.
The names of the banks that will be affected by this decision have not yet been identified, but the German spokesperson said they would include “other institutions if necessary, as well as those already sanctioned by the international community”.
Russian economy will be hit hard
According to the White House, the removal of some Russian banks from the Swift system, which is used for trillions of dollars in transactions, will have a significant impact on the economy and force the country to become dependent on a “phone or fax machine” to make payments.
Although the explanation of the White House is somewhat exaggerated, it is a known fact that although there are workarounds except Swift, none of them are as efficient as it.
In the past, only one country – Iran – was removed from the union and this move caused the country to lose 30% of its foreign trade.
The selection of specific Russian banks was carried out to ensure that the sanctions had the greatest impact on Russia while minimizing the impact on Europe. This way, European businesses will be able to continue collecting debt and buying Russian energy.
Restrictions on Russia’s central bank will prevent it from using its currency to limit the impact of sanctions. Russia is creating a foreign exchange buffer to protect its banks, but this new measure is expected to significantly reduce existing reserves.
It may take some time before the effects of these measures show – but this move expresses the intention of Western nations to take immediate action.
The use of the war chest will be blocked
European Commission head Ursula von der Leyen said the Russian central bank’s decision to freeze its assets would prevent the Kremlin from “using its war chest”.
The EU and its partners agreed to freeze the bank’s transactions and prevent it from liquidating its assets. Leyen continued his words as follows:
There will also be a crackdown on so-called “golden passports” that “allow wealthy Russians affiliated with the Russian government to become citizens of our countries and access our financial systems.”
British Prime Minister Boris Johnson said the UK was taking “decisive steps” and tweeted: “We will continue to work together to ensure that Putin pays the price for his aggression.”
Responding to the announcement, Ukrainian Prime Minister Denys Shmyhal tweeted that he appreciated the sanctions, calling it “a real help in this dark time”.
At 20:00 today, EU foreign ministers will meet to coordinate member states’ military assistance to Ukraine and discuss humanitarian assistance to the country and those fleeing the conflict.