In particular, economic and financial sanctions supplemented by the latest G7 announcement to prevent targeted individuals or businesses from using cryptocurrencies to evade devices cut off their ability to support the war effort of the Russian economy. The purpose is to do. By Sandy Campart, a research professor at the University of Caen-Normandy (1).
These measures are unprecedented in their nature and scope. The combined weapons of US, European and Asian authorities cover four key areas: international payments, currency markets, electricity and people’s assets close to export control.
SWIFT is an acronym for “Society for Worldwide Interbank Financial Telecommunication”. This financial messaging system, which connects 11,00 financial institutions and businesses around the world, is overseen by the Federal Reserve Bank of the United States, the Bank of England, the Central Bank of Europe, the Bank of Japan, the National Bank of Belgium, and other major central banks. It has been.
No longer having access to it constitutes an expulsion with serious economic consequences. Iran in 2012 had a bitter experience with this in the context of European sanctions on Iran’s nuclear program and its sources of funding. Target Russian financial institutions dominate the financial sector with $ 1 trillion in assets.
Alexei Kudrin, a former finance minister close to President Vladimir Putin, said Russia’s GDP could be reduced by 5% in a year when Western countries threatened Russia’s access to SWIFT in 2014 and when Crimea was invaded. Estimated.
Some Chinese buyers are said to have already stopped buying Russian coal for this reason. Recently, many multinationals have announced that they have ceased operations or withdrew from Russia. Volkswagen, IKEA, Boeing, Airbus, Exxon, Apple, Ford and even Nike.
The United States, United Kingdom, or the European Union has banned financial transactions involving the Central Bank of the Russian Federation.
Its purpose is to limit Russia’s ability to mobilize its reserves in international currencies. These are about $ 630 billion. According to Russia’s own data released in January, $ 100 billion was held in US dollars in June.
British Prime Minister Boris Johnson has also announced a freeze on the assets of all major Russian banks. VTB, Rossiya, IS Bank, General Bank, Promsvyazbank, BlackSea Bank. Large Russian companies and states are also banned from raising funds on the London International Stock Exchange.
Assets of people close to power
Asset freezes also result in the fixation of all assets, whether owned or controlled, for a particular target personality and company. Holders of these assets will not be able to transfer, sell or collect income.
Switzerland, a historically neutral country that is not a member of the European Union, said it would adopt block sanctions against Russia, including asset freezes. The Swiss government has announced that it will apply EU sanctions “with immediate effect” to hundreds of Russians, including Foreign Minister Putin and Sergeĭ Viklov. Swiss airspace will also be closed for all aircraft “marked with Russia”.
Tighter regulations and bans have also been announced around the world. The European Union will ban the export of goods for the mining industry, such as aircraft, aircraft parts, related equipment, and petroleum refining equipment.
Export control will also be introduced in dual-use and high-tech products, with a particular focus on electronics, computers, telecommunications and information security, sensors, lasers, and applications.
Belarus is inevitable. From mineral fuels to tobacco, wood, cement and steel, imports from that country are banned.
Impact on the Western economy
All these measures must have an impact on the global economy. In Europe, the main risk is not as much of the soaring energy costs as the turmoil in the flow of trade with Russia (equivalent to 0.5% of the GDP of the French economy).
External supplies, mainly from Russia, Norway and Algeria, make up about 80% of the gas consumed by the EU.
In addition, gas pipelines cross several borders and create many possible chokepoints. But solidarity is organized. The United States has announced that it will release strategic oil reserves to help stabilize the international energy market. Similarly, South Korea is ready to share its liquefied natural gas inventory with Europe.
The countdown has begun
Russia must swiftly win its coveted military victory and negotiate the lifting of economic sanctions from a strong standpoint before it comes into force.
Indeed, the economic system is a trust-based card home. The collapse of currencies, soaring interest rates, the sale of large amounts of securities, and Russia will soon bear the costs.
International economic and financial sanctions have proven to be strict. Would you like to start the Kremlin Master’s decision from there?
(1) Sandy Campart is a member of the Center for Economic Management Research (CREM) and director of the Banque Finance collection for the EMS edition.