🌈 A quick taster for you:
- SWIFT exclusion prevents Russian imports and exports.
- The Russian Central Bank cannot stop the fall of the ruble.
- Sanctions affect the entire Russian population.
🧐 Why do I care?
Every day new sanctions are being imposed against Russia with the aim of ending the war in Ukraine. ‘The West’, especially the EU and the USA, are taking broad action against Russia — including sanctions on their energy sector, transport sector, technology sector, their media, and sanctions which are targeted at individual politicians, businessmen and oligarchs. There are also a number of private-sector companies and organizations — from internet giants to sport federations — who are imposing their own sanctions against Russia. In today’s The Briefing we’re going to give you an overview of the sanctions being imposed against Russian financial institutions, and the impact that these sanctions are having.
🔍 What exactly is happening here?
- TL:DR Sanctions Overview
Energy sector: There is a ban on the sale, supply, transfer, or export of oil refining goods and technologies to Russia — aiming to hinder the modernization of Russian oil refineries.
Technology sector: There is a ban on the export of various technologies to Russia — impeding their ability to produce microchips.
Media: In the EU, the Russian state media RT and Sputnik will be banned.
Transport sector: There is a ban on the export of various goods and services to the Russian aerospace industry. In addition, the EU has closed its airspace to Russian aircraft.
- Russian banks will be excluded from the SWIFT
It’s been decided that many Russian banks will be excluded from the SWIFT payment system. But what actually is SWIFT? It stands for ‘Society for Worldwide Interbank Financial Telecommunication’, and it's a network for exchanging information between banks so that international transactions are kept secure. You may have only heard about SWIFT in the last few days, but you’re probably already aware of BIC — the code on your bank card that you sometimes have to include with wire transfers — and it’s this BIC code that is used in SWIFT. The BIC code is used to confirm the identity of the bank and to ensure that the transfer ends up in the correct account.
- What does excluding Russian banks from SWIFT mean?
The banks affected by the SWIFT exclusion will no longer be able to make foreign transfers or receive transfers from abroad. Making payments for exports and imports will become almost impossible. As a result, those banks can no longer operate globally, or if so then only to a very limited extent.
However, it’s not only Russia who will be affected by their exclusion from SWIFT. Many other countries are currently dependent on raw material imports from Russia. Germany, for example, buys a lot of oil from Russia. Due to Russia’s exclusion from SWIFT, the invoices for those imports can’t be paid — in return Russia could simply turn off the tap and stop all oil exports. As mentioned in our last newsletter, these are the consequences we may have to face in order for sanctions to make a real difference. Freedom has its price.
- Sanctions against the Russian Central Bank
The EU has also adopted sanctions directly against the Russian Central Bank. This is one of the toughest sanctions ever. Why? Because Russia will have hoped to use the money of its central bank to secure itself against the other sanctions.
Every country’s central bank keeps a ‘nest egg’ in order to support their own currency in times of crisis. In the case of Russia, their nest egg is worth $630 billion. Currencies, like all commodities, react to supply and demand. In recent days, demand for rubles has fallen — leading to a massive deterioration in value. On the 1st of February you could get 83 rubles for €1, and on the 1st of March you could get 110 rubles for €1. It’s expected that the Russian currency will continue to fall in value.
Central banks can normally compensate for any loss in value. The assets of the Russian Central Bank are divided into Euro, Yuan and gold. So if the ruble loses value then, in previous times, assets of the Russian Central Bank could be used to create artificial demand, by exchanging Euros for rubles so that the value of the ruble rises again. But the sanctions against the Russian Central Bank mean that all their assets in Western countries are frozen.
- Further consequences of the financial sector sanctions
The sanctions will have a big impact on the citizens of Russia. Due to the exclusion of SWIFT, people’s credit cards will no longer work and there may be a run on the banks as people try to withdraw as much cash as possible before their savings vanish into thin air. ATMs are likely to run out of cash, or only issue only small amounts of cash to each person.
🤓 What does this mean for me?
An outbreak of war in Europe is something we haven’t had to deal with in the last 30 years. Right now, as we each observe the unfolding situation in Ukraine with horror and dismay, it’s clear that events are changing at rapid speed — what we’ve written here may already be outdated by tomorrow. But however the situation develops, we will be here to keep informed about how sanctions are affecting Russia and the consequences that they’re having elsewhere.
Stop the war.