Biden and Europe await key sanction against Russia
US and European officials are holding a key financial sanction against Russia in store, choosing not to kick Russia out of SWIFT, the dominant system for global financial transactions.
Russia’s invasion of Ukraine sparked a barrage of new financial sanctions on Thursday. The sanctions aim to isolate, punish and impoverish Russia in the long term. President Joe Biden has announced restrictions on exports to Russia and sanctions against Russian banks and state-controlled companies.
But Biden pointedly downplayed the need to block Russia from SWIFT, saying that while it’s “still” still an option, “at this time, that’s not the position the rest of Europe wants to take.” . He also suggested that the sanctions put in place would have more teeth.
“The sanctions we’ve imposed exceed SWIFT,” Biden said in response to a question Thursday. “Let’s have a conversation in about a month to see if they work.”
Yet some European leaders, including the UK, favor the extra step of blocking Russia from SWIFT, the Belgium-based consortium used by banks and other financial institutions that serves as a key communication line for the trade around the world. The SWIFT system sent an average of 42 million messages a day last year to enable payments. The name is an acronym for the Society for Worldwide Interbank Financial Telecommunications, and around half of all high-value payments that cross national borders go through its platform.
Ukraine has called for Russia to be banned from SWIFT, but several European leaders would prefer to remain patient as a ban could make international trade more difficult and hurt their economies.
“A number of countries are reluctant because it has serious consequences for themselves,” said Dutch Prime Minister Mark Rutte, who believes a ban should be a last resort.
The British government said Prime Minister Boris Johnson lobbied at a virtual meeting of the Group of Seven world leaders on Thursday to have Russia kicked out of SWIFT. He said there was ‘no backing down’, but it was agreed more talks were needed. British officials have not confirmed that Germany is resisting.
U.S. lawmakers have called on Biden to deploy all available financial sanctions, with Republican Senate Leader Mitch McConnell saying Thursday that America should “raise the sanctions all the way.” Do not hold back. Every severe sanction available should be used, and should be used now.
But Sen. Jim Risch of Idaho, the top Republican on the Senate Foreign Relations Committee, said banning SWIFT would be complicated and time-consuming, in part because the United States has no control over decision.
The problem is that banning Russia from SWIFT might not cut it off from the global economy as cleanly as its proponents think. In addition, there could be a backlash in the form of slower international growth. And competing messaging systems could gain users in ways that erode the power of the US dollar – all of which has left SWIFT like a penalty waiting to be rolled out.
“It’s a communications platform, not a financial payment system,” said Adam Smith, a lawyer who worked in the Obama administration. “If you take Russia out of SWIFT, you take it out of a key financial artery, but they can use pre-SWIFT tools like phone, telex or email to do interbank transactions.
The other risk is that countries could migrate their institutions to platforms other than SWIFT, such as a system developed by China. This would increase friction in global trade – hurting growth – and make it harder to monitor the finances of terrorist groups.
“By politicizing SWIFT, you’re incentivizing others to develop alternatives,” said Brian O’Toole, Atlantic Council senior fellow and former Treasury official. “SWIFT is also an important partner in US-European counterterrorism efforts. It shares data related to counter-terrorism issues with the US Treasury that has proven extremely valuable.
The sanctions announced Thursday would still accomplish much of what would happen if Russia lost access to SWIFT, said Clay Lowery of the Institute of International Finance.
“Banning these financial institutions from using the dollar, euro and pound sterling is still a pretty big step,” Lowery said. “You really have the same impact on certain subsections of the Russian economy through sanctions.”
Iran was blocked from the SWIFT system in 2014 due to its nuclear program. In 2019, then-Prime Minister of Russia Dmitry Medvedev said losing access to SWIFT would amount to a declaration of war against Russia. Medvedev’s statement is a sign that Russia viewed the platform as a vulnerability and developed workarounds to limit any economic damage.
“I think it will be harmful in the immediate term and also psychological, but I’m not sure it will impact the economy in a worthwhile way,” Smith said.
Russia has already prepared ways to evade sanctions, including those imposed this week, experts say.
Ari Redbord, a former senior Treasury adviser, said he expects Russian leaders to circumvent financial sanctions that limit their ability to engage with the global financial system through increased use of cryptocurrencies. change.
He said it was a risk “especially when there are players like Iran, China and North Korea” who will continue to trade with Russia outside the formal financial system, he said. said Redbord.
“If Russian banks are completely cut off from the US and European financial system, it will be very debilitating for these banks and the Russian economy,” he said. But the Russian government will use alternative means to trade with countries ‘even if there are debilitating sanctions’ from the European Union and the United States
Associated Press writers Jill Lawless in London and Lisa Mascaro in Washington contributed to this report.