In response to Russia’s unprovoked invasion of Ukraine this week, transnational Western authorities have taken significant actions to restrict the Eurasian kleptocracy’s access to the global financial system. It remains to be seen whether Russia might face the ultimate sanction – wholesale removal from the international SWIFT system, which coordinates transfers between banks.
Such a cutoff from the Belgium-based Society for Worldwide Interbank Financial Telecommunications would be a world-historical turning point, arguably representing the end of the post-Cold War dream of a global democratic-neoliberal consensus. (Turns out “The End of History” was greatly exaggerated – there is a potential future beyond liberal capitalism.) It could also push at least some new amount of Russian and Russian-aligned financial activity onto decentralized networks such as Bitcoin, especially given the country’s deep involvement with the technology over the past decade.
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Restrictions and sanctions on Russian institutions and individuals have come at a blistering pace this week. On Feb. 24, the U.S. Treasury Department announced it was cutting off Russia’s two largest banks, Sberbank and VTB Bank, from global U.S. dollar (USD) transactions, as well as seizing international accounts from Russian institutions and wealthy individuals. The European Union (EU) said Thursday it would seize personal assets of President Vladimir Putin and his deputy, Sergei Lavrov. China, another authoritarian state, has notably refused to impose sanctions on its neighbor.
Non-financial sanctions are also coming fast and furious. The U.S. has restricted technology exports along with imposing financial constraints. Taiwan, arguably the world’s most important maker of semiconductors, suggested Friday morning it will restrict supplies to Russia, with potentially devastating medium- and long-term consequences. In Norway, the seizure of a “yacht” owned by a Putin ally may have uncovered a sabotage operation targeting the Nordic region.
A remaining major question is SWIFT, the communications network that coordinates global interbank transfers. European international relations scholar Dóra Piroska is among those calling for removing Russian institutions from the platform. According to the New York Times, U.S. President Joe Biden has the unilateral power to kick Russia off SWIFT. Iranian institutions have previously been removed from SWIFT – in retaliation, it must be said, for actions far short of Russia’s invasion.
However, some argue that such a measure is unlikely. Since its founding in 1978, SWIFT has attempted to position itself as a neutral, nonpolitical entity, but the real obstacles are more complex. For instance, according to Bloomberg’s Javier Blas, Europe continued to buy Russian natural gas even as the invasion got into full swing. European nations including Germany are dependent on that fuel for winter heating and other energy needs. Cutting off SWIFT access would likely disrupt this vital trade, leverage Russia certainly weighed in its decision to invade Ukraine.
There is also a humanitarian argument for letting Russia keep access to SWIFT – a cutoff could harm many relative innocents. Cutting off Russian banks from SWIFT would shrink the economy, according to one estimate, by a stunning 5%, likely leading to the immiseration of many Russians.
Russia is an undemocratic authoritarian state whose leader has enriched himself and a circle of cronies through various forms of embezzlement. Putin, a former KGB agent who has ruled for close to two decades, is believed to be, in effect, the richest man in the world, but experts say much of his wealth has been placed in the custody of various so-called oligarchs. Much of this, it must be emphasized, was enabled by America and the West’s support for the rushed, ill-conceived and possibly corrupt privatization of the Russian economy following the collapse of the Soviet Union (USSR) in the 1990s.
Meanwhile, Russia has reportedly been developing its own alternative to SWIFT, which the former prime minister, Dmitry Medvedev, claims is functional and could replace SWIFT access if necessary. That presents the possibility of Russia becoming the nexus for a second global banking network, one totally outside of European and U.S. influence, and likely not based on the U.S. dollar. Jared Bibler, a former Icelandic banking regulator, argued on Twitter on Thursday that American desire to maintain dollar dominance over the long term makes it unlikely Russia will be kicked off SWIFT.
If it were cut off, Russia could also transfer some international financial activity to crypto networks. According to the World Bank, Russia’s import/export flows total around $675 billion annually, a volume that could be accommodated with relative ease on the Bitcoin network. According to CoinDesk data, Bitcoin processes $20 billion in on-chain transactions per day, or more than $7 trillion per year. (Total cross-border capital flows from Russia, including finance in addition to trade, are considerably larger.)
Russia’s aggression is unfolding in a much more tightly connected world than the one of even three decades ago. It remains to be seen how Russia, once famous as a builder of defensive concrete walls, can deal with being hemmed in by less tangible financial barriers.