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Written by Piero Messina
There is the war that is fought on the ground and there is the war that is fought with international finance weapons. Financially, Europe and the United States have a nuclear option. They used it: to oust the Russian Central Bank from Swift transactions.
But what is the Swift? It is an acronym that stands for “Society for Worldwide Interbank Financial Telecommunications”: it is a Belgian messaging platform that connects thousands of financial institutions from all over the world for money transfers. Messages with the necessary instructions to transfer the funds travel on Swift: not the actual money, therefore, but the address to send it to. And it takes place through a code: a string of numbers and letters, between 8 and 11 characters, which allows you to make secure payments through banks in different countries. It is considered to be one of the most efficient mechanisms for verifying the identity of the bank or financial institution that acts as an intermediary for payments.
Once again the United States pushed Europe to make the first move. European Union foreign affairs ministers approved banning all transactions with the Russian central bank, according to officials familiar with the decision. According to the analysis of the Bloomberg portal, “the move, which is part of an effort to isolate Moscow’s economy and financial system, paves the way for the measure to be adopted as soon as Sunday evening, said the officials, who asked not to be identified because the process is private. Russia has about $ 640 billion in reserves. In a remarkable show of force and unity, western powers cast aside all their previous concerns about Russian energy export dominance, and uniliaterally announced the nuclear option of imposing sanctions on the Russian central bank coupled with targeted exclusions from SWIFT of key Russian banks “.
The goal of this move is to undermine the Russian economy, hit the population and precipitate the Russian consensus towards President Vladimir Putin. In practice, it is a financial “coup”, the ultimate aim of which is to push the Moscow establishment to dethrone Putin. The decision to penalize Russia’s central bank and exclude four other Russian banks from the SWIFT messaging system, used for trillions of dollars worth of transactions around the world, was announced Saturday in a joint statement by the US, European Commission, France, Germany, Italy , UK and Canada.
It is an extreme decision. It is the first time in the history of world capitalism that a bank the size of the Russian one has been excluded. The consequences on the world market could be devastating and the West could be hit by a boomerang effect. In the past, the U.S. has previously sanctioned the central banks of adversaries such as Iran and Venezuela for funneling money that supported destabilizing activities in their respective regions. North Korea’s central bank is also blacklisted.
The first consequences were not long in coming. Russian banks are offering to exchange rubles for dollars at a rate of 171 rubles per dollar on Sunday, compared to the official closing price of 83 on Friday before the European / US announcement about targeting the Russian central bank. In other words we are looking at a 50% + devaluation of the Ruble. Western investors are fleeing Russia too: widespread announcements of divestments in Russian equities by the likes of British petroleum and the Norwegian sovereign wealth fund mean that the Russian market will be a bloodbath on Monday. The risk for Russia is clear: bank runs that can exacerbate internal social tension and dollarization of the economy, the exact opposite of what Vladimir Putin hoped for in recent years and partly achieved by the Bank of Russia’s reserve diversification policy . Europe could immediately realize what the price of this decision could be, aggravated by the closure of its airspace to Russian flights and the banning of media deemed collateral to the Kremlin (RT and Sputnik). Russia could immediately launch unprecedented counter-sanctions that hit the Old Continent’s economy to the heart. Starting with closing the gas taps, despite Gazprom’s reassurance today on the regularity of the flows.
