As Russia moves further into Ukraine and many sanctions have isolated all Russian banks from the rest of the global financial network, depriving the nation of important technology, the United Kingdom foreign secretary Liz Truss has said that:
“The UK is working with allies to exclude Russia from the Swift financial system.”
Truss will try to negotiate for the position after the European Union failed to adopt severe sanctions, as reported in The Guardian. The UK insists on its position that with Ukraine mounting a defense, it is the optimum time to get ahead of Russia and interfere with its entire economy.
The United Kingdom defense secretary Ben Wallace said:
“We would like to go further. We’d like to do the Swift system – that is the financial system that allows the Russians to move money around the world to receive payments for its gas – but … these are international organizations and if not every country wants them to be thrown out of the Swift system, it becomes difficult.”
While it has been known as the ‘nuclear option,’ the EU and US are continuing to hold back from cutting Russia off from SWIFT after voicing their fears for the effect it would have on bigger economies in Europe.
CNN reports that US President Biden is convinced that depriving Russia of access to Swift is ‘always an option.’ But:
“right now, that’s not the position that the rest of Europe wishes to take.”
In the scenario that Russia is unplugged from Swift, its economy will shrink by 5%, as projected by former finance minister Alexei Kudrin sometime in 2014. That year was the last time the sanction was considered while responding to the Russian annexation of Crimea.
Moreover, when the Iranian banks were sanctioned by the European Union over their nuclear program in 2012, Iran lost nearly half of its oil export revenue and 30% of foreign trade after the disconnection. CNN also said that Russia has taken measures to prepare for this possible eventuality.
Moscow’s payment system SPFS is available, although it was hit by sanctions in 2014 after the annexation of Crimea. SPFS has nearly 400 users and 20% of the domestic transfers are now done via SPFS, though the size of messages is restricted and operations limited to weekday hours.
China’s Cross-Border Interbank Payment System (CIPS) might also be an option, together with the use of cryptos. Sales trader at the United Kingdom-based digital asset broker GlobalBlock, Jonas Luethy, who are publicly listed in Canada, commented:
“Bitcoin took a sharp fall to lows of $34,200 due to uncertainty in the world economy. The crypto market has followed traditional financial markets as the situation in Ukraine escalates to war. Altcoins also took a heavy hit, with most recording losses above 10%. $200 billion was wiped from the crypto market cap as a result. Some have speculated that Russia might use Bitcoin to evade Western sanctions.”
This might be quite negative for the general perception of crypto as it would give Western governments more legitimacy to crack down on digital assets.
“Canadian Prime Minister Justin Trudeau has ended the national state of emergency which saw an unprecedented crackdown on bank accounts and an attempt at cracking down on crypto wallets. These draconian measures only highlighted the importance of Bitcoin and cryptocurrencies, and it comes as no shock that people are starting to see decentralized solutions as a haven from government intervention.”
In the meantime, a group of Russian banks hit by sanctions has issued a joint statement aiming to calm the nerves of their clients and avoid a run. The group include VTB, Sber, Otkritie, Alfa Bank. They have insisted that:
“We have enough liquidity to satisfy the demand, there are no restrictions for cash withdrawal either in ATMs or the banks’ offices”.
In some other news, a fundraising page for the Ukrainian military has shut down on Patreon after the donations to the organization’s Bitcoin wallet exceeded $1 million. A Kyiv-based nonprofit, Come Back Alive, said that money will be used for military equipment and medical kits for Ukrainian soldiers.