Due to the situation in Ukraine, the US and the EU have already introduced a whole series of economic sanctions, significantly complicating the work of the largest organizations. And now they have taken unprecedented measures: the European Union prohibits all transactions w-ith the Bank of Russia, freezes international rese-rves and is ready to disconnect several banks fr-om SWIFT. This essentially undermines the en-tire financial system – the world, not just the Ru-ssian one. What could res-ult in such tough measur-es, understood RIA Nov-osti.
According to the head of the European Commission Ursula von der Leyen, the European Union prohibits all transactions with the Central Bank of Russia. In addition, on Sunday night, Washington and Brussels imposed sanctions on his international assets.
The scenario is not new: the Iranian Central Bank has been under US blocking sanctions for more than two decades. Nearly two billion dollars in US Citibank are frozen. In 2019, the Americans added the Central Bank of Venezuela to the SDN (Specially Designated Nationals and Blocked Persons) list, and Syria the next year.
In August 2021, seven b-illion Afghan dollars stored in the United States were frozen. Now the Joe Biden administration says it will decide how Kabul’s money is spent. They intend to g-ive half to the victims of the September 11 attacks, and send the other half to hum-anitarian organizations. In Afghanistan and China, it was called robbery.
“This is actually an attempt, this is theft, in fact, someone else’s property is being snatched away,” Anatoly Aksakov, head of the State Duma committee on the financial market, assessed what is happening now with Russian reserves.
Analysts state that such extreme financial sanctions will hit not only the Russian financial system, but throughout the world. The freezing of transactions means that the work of any counterparties in the European Union, as well as the United States and Canada, will be suspended. The Bank of Russia will not be able to buy and sell foreign currency, and this will deprive European and American partners of the opportunity to pay for Russian exports.
“It means that it is impossible to pay for Rus-sian gas, oil and other g-oods. Panic will arise on the stock exchanges of Europe and the United States. R-ussia is ten percent of world oil production, about 170 billion cubic meters of gas supplies to Europe, more than a third of US needs for palladium and much more, including first place in the world in wheat, that is, this is a blow to many countries,” says Andrey Koch-etkov, a leading analyst at the Otkritie Broker market analysis department.
He did not rule out the possibility that Russian exports would be paid for in rubles, and in order to buy them, partners from Europe and other countries would start selling foreign currency directly on the Russian foreign exchange market.
Disconnect from SWIFT
The Cabinet of Ministers of Germany also announced that the Russian organizations that fell under the sanctions will be disconnected from SWIFT, the global interbank communication system. As stated in the message following the talks of Western leaders, “the isolation of these institutions from international financial flows will significantly limit their global activities.”
Transfers within the country under any scenario are provided by the Financial Message Transfer System (SPFS) of the Bank of Russia. With its help, 20 percent of transactions in the domestic market are now carried out. Banks of most post-Soviet states, as well as some organizations from Germany and Switzerland, joined it.
As far as international payments are concerned, analysts suggest that they will probably involve correspondent relationships with Asian banks. In particular, it is possible to connect to the Chinese CIPS (China International Payments System).
An interesting point: SWIFT is a cooperative community under Belgian jurisdiction. The system is owned by formally independent private financial institutions. “Therefore, neither Washington nor Brussels have the right to specify who to turn off and who not,” emphasizes Petr Pushkarev, lead economist at the TeleTrade information and analytical center.
However, there are two precedents: in 2012 they did this with Iran, in 2017 with North Korea.
Scale of the disaster
The blocking of gold and foreign exchange reserves will not allow for additional emission to maintain the liquidity of banks within the country, financial analyst Andrei Plotnikov points out.
It is not yet clear how much will be blocked. As of February 18, the gold reserves of the Bank of Russia amounted to 643 billion dollars. They are placed in assets denominated in various currencies, as well as in gold. The freeze may affect the euro (29%), dollars (21.9%), pounds sterling and yen. This is about 63%.
Gold (23% of $140 billion) is in Russia, as is cash and the ruble.
According to data published on February 1, 311 billion dollars are placed in securities of foreign issuers, 152 billion – in cash and deposits in banks abroad.
Another 132 billion are stored in gold in Russia, about 30 billion are held in reserves at the International Monetary Fund (IMF) and special drawing rights (SDRs).
However, this information is disclosed with a certain time lag, approximately six months. Moreover, information about where the assets are stored territorially is closed.
It all depends on where the Central Bank now has what they use for interventions, points out Natalya Milchakova, deputy head of the Alpari IAC. Blocking reserves in dollars, euros and pounds sterling may complicate the sale of currency, which the Central Bank began on February 24 to stabilize the ruble. If there is a shortage, the Central Bank can purchase foreign currency abroad, primarily from its allies in the Eurasian Economic Union (EAEU), China or India.
As the regulator, the Bank of Russia, stressed earlier, financial institutions have clear action plans “for any scenario.”
Experts point out that the freezing of transactions and reserves makes the currencies of developed countries toxic, increasing the likelihood of a return to the conditional gold standard. It is possible that China will start selling US Treasuries and European bonds, transferring reserves into precious metals and strategic materials, Andrey Kochetkov from Otkritie Broker notes.
In fact, actions directed against Russia are capable of destroying the entire global financial system that was created 75 years ago.