As Russia moves further into Ukraine and sanctions have isolated Russian banks from the rest of the global financial system, depriving the country of vital technology, UK foreign secretary Liz Truss has revealed that the “UK is working with allies to exclude Russia from the Swift financial system.”
Truss will attempt to negotiate for this position after the European Union failed to adopt sanctions, as reported in The Guardian. The UK maintains its position that with Ukraine mounting a defence, this is the optimum time to get ahead of Russia and interfere with its economy.
UK defence 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 organisations and if not every country wants them to be thrown out of the Swift system, it becomes difficult.”
While this has been dubbed the “nuclear option,” the US and EU are continuing to hold back from cutting Russia off from Swift after voicing their concerns for the impact it would have on larger economies in Europe.
CNN reports that US President Biden believes that depriving Russia of access to Swift is “always an option.” However, "right now, that's not the position that the rest of Europe wishes to take.”
If Russia were to be unplugged from Swift, its economy would shrink by 5%, as predicted by former finance minister Alexei Kudrin in 2014 the last time the sanction was considered in response to the Russian annexation of Crimea.
Further, when Iranian banks were sanctioned by the EU over their nuclear programme in 2012, Iran lost almost half of its oil export revenue and 30% of foreign trade following the disconnection. CNN also reports that Russia has indeed taken steps to prepare for this potential eventuality.
Moscow’s own payment system SPFS is available, despite being hit by sanctions in 2014 following the annexation of Crimea. SPFS has around 400 users and 20% of domestic transfers are currently done through SPFS, although the size of messages is limited and operations limited to weekday hours.
China's Cross-Border Interbank Payment System, or CIPS, would also be an option, in addition to the use of cryptocurrencies. Jonas Luethy, sales trader at the UK based digital asset broker GlobalBlock, who are publicly listed in Canada, sent in comment to Finextra.
“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 in excess of 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 could be very negative for the general perception of cryptocurrency 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 decentralised solutions as a safe haven from government intervention.”
Meanwhile, a group of Russia banks hit by sanctions - Sber, VTB, Alfa Bank and Otkritie - has issued a joint statement seeking to calm the nerves of customers and avoid a run, insisting that "we have enough liquidity to satisfy the demand, there are no restrictions for cash withdrawal either in ATMs or the banks’ offices".
In other news, a fundraising page for the Ukrainian military has shut down on Patreon after donations to the organisation’s Bitcoin wallet surpassed $1 million. Come Back Alive, a Kyiv-based nonprofit, says funds will be used for military equipment and medical kits for Ukrainian soldiers.