In a major move aimed at crippling Russia's economy, the US, the EU and the UK, in a concerted move, have decided to disconnect Russian banks from the global financial system -- referred to as SWIFT -- and impose restrictive measures on its central bank.
This essentially means that Russia will struggle to receive payments from outside of the country, which will cause serious economic problems. Russian companies and individuals will especially find it harder to pay for imports and receive cash for exports, borrow or invest overseas.
Russia is heavily reliant on the SWIFT system for its key oil and gas exports.
It has also been decided to impose restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of sanctions. With the central bank facing severe constraints on currency intervention, the rouble will struggle to find a bottom. ‘‘No-one wants to catch a falling knife," a market strategist told the BBC.
The US and its allies have also decided to launch a joint task force to hunt down assets of sanctioned Russian companies and oligarchs. The task force will strip the super rich of 'yachts, money and ability to send kids to Western schools,’ said a report in the Daily Mail.
A senior US administration official told reporters that Russia has become a global economic and financial pariah with over 30 countries representing well over half the world's economy announcing sanctions and export controls against it.
The Swift move has come despite fears of how Vladimir Putin might respond – including concerns that he could threaten to pull out of the 1970 nuclear non-proliferation treaty.
APPEAL FOR CALM AMID FEARS ON RUN ON BANKS
Russia's central bank has issued an appeal for calm amid fears that the new financial sanctions could trigger a run on its banks, reports the BBC. A run on Russian banks would see too many people trying to withdraw money. On Friday, Russia's central bank was forced to increase the amount of money it supplies to ATMs after demand for cash reached the highest level since March 2020. Announcing the measures, Ursula von der Leyen, president of the European Commission, said: "The European Union and its partners are working to cripple Putin's ability to finance his war machine." But, on Sunday, the Bank of Russia insisted: "The Russian banking system is stable, has sufficient capital and liquidity to function smoothly in any situation. All customer funds on the accounts are saved and available at any time." It also said that it will use its own network, called the System for Transfer of Financial Messages (STFS), for payments within Russia, adds the BBC.
Russia's central bank has reserves of around $630bn (£470bn).
