War In Europe: The Financial Front

Russia is reeling from massive financial sanctions, while Ukraine’s financial system is battered but remains functional, and the EU and global financial systems have rather easily absorbed the initial shock. BY: JOSHUA KIRSCHENBAUM AND NICOLAS VÉRON DATE: MARCH 7, 2022 TOPIC: GLOBAL ECONOMY AND TRADE Financial sanctions against Russia since its invasion of Ukraine began on 24 February have include three main planks. First, sanctions against name Russian individuals have expand dramatically. Second, a series of sanctions has been impose on individual Russian banks.

These include – but are far from limit to – the much-hype ability of the European Union to require disconnection of individual Russian banks from SWIFT, the international interbank messaging system which is base in Belgium and thus under EU jurisdiction. Third, the Bank of Russia, the country’s central bank, has been block from using its international reserves in a number of jurisdictions. Critically, these include the United States, the EU, United Kingdom, Canada, Japan, Australia and Switzerland.

The Second Occupies A Middle Ground

In other words, all the world’s Vietnam phone number reserve-currency jurisdictions. Bar China China’s share of the world’s aggregate central bank foreign reserves remains In the low single digits, even though. Its share of the Bank of Russia’s reserves is significantly higher. This third action, targeting the Bank of Russia, unambiguously counts. As systemic and affects the entire Russian financial system and economy. Starting with the ongoing slide in the value of the ruble. The first action is about individuals.

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If only a relatively small share of Russian banks are affect. It is non-systemic, but if most are. It becomes systemic. From that standpoint. The EU’s ‘de-SWIFTing’ actions are still non-systemic. Since only seven institutions representing about a quarter of the. Russian banking system are on the latest list. More could follow, however. In addition to these governmental decisions. Some key financial firms are on their own initiative restricting their Russian services. Such as VISA and MasterCard, adding to the general disruption.

What Has Never Happened Before

The impact on Russia’s currency and economy of the systemic sanctions target at the Bank of Russia is devastating, in part because they were so unexpected, and despite the continue ability of Russia to achieve a current-account surplus as long as it keeps exporting hydrocarbons. In the past, the United States has sanctioned other central banks (for example, Venezuela and Iran in 2019). however, is coordinated action by all Group of Seven (G7) jurisdictions against a central bank, let alone one as large and internationally active as the Bank of Russia.

In fact, none of the 63 central banks that are members of the Bank for International Settlements (BIS) in Basel has ever been the target of financial sanctions. The Bank of Russia is not only a member of the BIS club but also of its more exclusive subsets, eg the Financial Stability Board or the Basel Committee on Banking Supervision.  Astonishingly for observers of the ostensibly soft-spoken.

 

 

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