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It seems that sanctions, especially those of SWIFT, are the west’s main line of defense to protect Ukraine against Russia. Our leaders compare it to a (financial) nuclear bomb. Perhaps this will be a bit disappointing in a direct sense, but we have to rely on the emotional impact of money.

From what I hear in the news, Putin seems quite rational and has been preparing for years to carry out military action in Ukraine. If so, the supply lines to the front are considered and protected even if they are long and go through enemy territory. It would therefore make sense that Putin would also do this for the financial supply lines, taking losses into account.

Money is ratio, but certainly also emotion and emotions could have a much greater impact than the direct impact of sanctions. In Russia itself it seems that consumers believe that a SWIFT blockade will have a major impact, at least in our (Dutch) press I see rows of Russians in front of the ATM. Despite sanctions, the Russian ATMs can still deliver rubles and the Russian central bank can print rubles. But because of the emotion there seem to be rows.

Payment transactions in Russia in rubles, can also continue with sanctions; even with a total SWIFT blockade. Putin can just pay his soldiers wages, pay for new tanks and other weaponry (Russia seems self-sufficient, necessary Western electronics should be in stock) and as a major gas and oil country, he can also pay the fuel bill. Everything without SWIFT, just via the existing national and regional Russian payment systems.

The financial reserves that the Russian central bank has, according to the Dutch newspaper NRC $631 billion, is only partly affected by an embargo. Reserves in gold or other precious metals can be traded by the Russians with or without a SWIFT embargo. A SWIFT embargo will only partially impact foreign currency reserves (dollar; 16% and euro; 32% of reserves). I expect that the Russians have substantial amounts of cash in the vaults in these currencies. Otherwise, Putin would have been less prepared than it seems. With this cash, and some logistical challenges, payments can be made despite the SWIFT embargo. Russia also has reserves in securities of foreign governments and companies. Surely, they must have been able to possess this partly anonymously. The Russians probably didn’t even need the girls and boys from the Amsterdam Zuidas for that. What will fall under the sanctions are the liquid assets that the Russian central bank holds in foreign currencies with banks. At least if it can be somewhat traced that these funds entrusted are from the Russian central bank. The same applies here as with the securities, there are ways to make you invisible.

Russian banks are indeed unable to exchange payment transactions with their correspondent banks outside Russia via SWIFT due to the sanctions. The foreign branches of these banks will certainly run into difficulties or are already about to collapse. Depending on how these establishments are funded, it will have more or less impact on Putin’s Russia.

Due to the sanctions, the assets that Russian banks have with Western banks can no longer be reached. Payment transactions in euros and dollars are no longer possible for these banks and the account holders at these banks. In addition, European and American banks will do everything they can to prevent payments via possible “goat paths”, partly because of the enormous fines that regulators can impose. But I have also asked the question before, how are we going to pay the Russians for the gas supplied in the event of a full sanction? And will Russia accept if we deposit it into an account blocked for the Russians?

If Putin is really rational, then hopefully he has paid little attention to the “emotional” consequences of a SWIFT blockade. Then we have a chance that the sanctions will have the desired effect. Money is for most people emotion and less ratio.
 
 
Also read this article (Dutch only) from the Volkskrant

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