Russian President Vladimir Putin gestures as he speaks at the 10th business forum “Business Russia” in Moscow on May 26, 2015. Putin has encouraged businesses to expand domestically before Western nations lift economic sanctions, allowing once again the sale of many foreign goods in Russia. (Alexei Nikolsky/RIA Novosti, Kremlin Pool Photo via AP)
Western financial institutes lose credibility for Eastern clients following Russia ban.
Written by Paul Antonopoulos, independent geopolitical analyst
“SWIFT is the financial nuclear weapon,” French Finance Minister Le Maire said after a meeting of EU finance ministers on February 25, one day after Russian troops started crossing Ukraine’s borders. “The fact remains that when you have a nuclear weapon in your hands, you think before you use it. Some member countries have expressed reservations, we take them into account […] We are not reluctant to use all the necessary weapons, without exception, against the Russia of Vladimir Putin.”
There is little doubt that removing Russia from SWIFT, the preeminent financial transactions and payments system in the world, and other Western financial mechanisms like Mastercard and Visa is a huge blow to the Russian economy and the daily lives of average citizens. However, describing SWIFT as a “nuclear weapon” is a wrong analogy as it suggests a complete destruction and subjugation, as happened to Japan after World War II.
The partial removal of Russia from SWIFT has not capitulated the country from its stated goals of de-Nazifying and de-militarising Ukraine. Rather, it has forced Russia to seek alternative payment methods, something that will undoubtedly cause short term pain and frustration. It is recalled that Sberbank and Gazprombank were exempted from the SWIFT ban because they handle most of the payments related to gas and oil exports – 40% of gas consumed by the European Union comes from Russia.
EU Foreign Minister Josep Borrell acknowledged on February 27 that “[Western countries] cannot block the reserves of the Russian banks that are in Moscow, or in China. In the last years, Russia has been placing their reserves more and more in countries where we could not block.” He claimed that only about 50% of Russia’s reserves could be blocked, a significant amount, but not to “nuclear” proportions.
On March 1, the Wall Street Journal wrote: “For the banks cut off from SWIFT, there may be options. Russia, for instance, has its own payment system. While it currently has only 23 foreign banks connected to it, 20% of internal transactions are already done through it, according to Fitch Ratings.”
According to Bank of Russia Governor Elvira Nabiullina: “We have the financial messaging system that can replace SWIFT inside Russia and allows the connection of foreign participants.”
The Wall Street Journal article concluded that: “Beijing has its own payment system, too, with more take-up by international banks than Russia’s. Some critics have worried that banning Russian banks from SWIFT could drive Russia and China together, eroding the supremacy of the dollar-denominated global financial system.”
Only days later on March 6, it was announced that Russian banks planned to issue cards using China’s UnionPay system, with Sberbank and Alfa-Bank saying they are working on a rollout of UnionPay cards. Only the day before, Visa and Mastercard announced that they would suspend operations in Russia. Rosbank, Tinkoff Bank, and the Credit Bank of Moscow (MKB) are also working on releasing UnionPay cards, effectively meaning that Russia is being pushed into the financial arms of China by being banned from using SWIFT, Mastercard and Visa, in addition to a plethora of other sanctions.
Although Russians are undoubtedly facing a period of financial uncertainty and stress, the repercussions of such an economic war will only see Russia more independent from Western financial systems as it seeks to diversify – whether it be through its own system, China and/or even other emerging systems like India’s RuPay.
In fact, despite the short term hurt Russia will face, ultimately the highest price of sanctions could be paid by the European Union, which has seemingly in an incomprehensible way underestimated the problems it would be exposed to, and how Russia would be able to link itself to Eastern systems in a relatively quick manner.
A poll conducted at the end of 2021 by the Federation of German Industries found that close to one-quarter of the 400 companies surveyed insist that their survival is under threat due to rising energy costs. That number would surely be even higher in the next poll as gas prices has risen to historic highs in Europe since then. However, it could be even worse for other EU members as Germany at least has access to the Nord Stream 1 pipeline.
The US is not immune to the effects of sanctions against Russia either though.
Patrick De Haan, an expert on oil and gasoline prices, highlighted on March 4 that although the national average for a gallon of gas was $3.781, he tweeted on February 28 that the average gas price in some US cities will reach $5 a gallon “in the next couple of weeks.” San Francisco on March 3 became the first American city with an average gas price of more than $5 per gallon, an increase of over 30% in one year.
The current political and ideological divisions in the US will now be further exacerbated by the economic shock that will follow, and it is likely that the American public will quickly lose interest in Ukraine. This economic war will prove only to weaken the Western liberal capitalist system as hundreds of billions of dollars will be disconnected from Western financial institutions and moved to the East – especially when traditionally neutral countries like Switzerland have actually sanctioned Russia, thus increasing the importance of Dubai for Russian investors, according to one expert. Surely other financial centres to the East will also benefit from Switzerland’s move away from neutrality, as well as from Russia’s disconnect from SWIFT, Mastercard and Visa.
