War economy: Russia had bargained for a swift victory, not SWIFT crisis!
Virendra Pandit
New Delhi: It is easy to launch a war, but difficult to sustain it. And long wars are, of course, history.
When it launched a military offensive on February 24 to tame Ukraine, Russia thought it would return with a swift victory in the next 48 to 96 hours. The war has, instead, continued for the sixth day on Tuesday and nobody knows when it would end as both Russia and Ukraine are digging in.
More, Russia is now facing the SWIFT financial attack from the West.
With the West imposing phased sanctions, the Russian currency rouble tumbled 30 percent, trading as low as 119 per dollar, against 84 per dollar just a day before, as offshore trading started on Monday. Russian stock exchanges, fearing a swift meltdown, closed operations in the morning and evening sessions for five days.
The West’s removal of Russia from SWIFT may be a severe curb because almost all banks that use the system of the world are interlinked through it. The SWIFT measures are expected to bleed the Russian economy faster than it thought.
The European Union, the US, and their allies like Japan, Australia, and Canada agreed to cut off several Russian banks from the main international payment system, SWIFT, an acronym for the “Society for Worldwide Interbank Financial Telecommunication”. It is a secure messaging system that makes fast, cross-border payments possible globally.
Of course, Europe would also suffer consequences: it imports around 30 percent of its energy needs from Russia.
With Moscow showing no signs of stopping the offensive in Ukraine, the West may unfold the fuller SWIFT strategy in the next few days to bust the offender’s economy. The assets of Russia’s central bank will be frozen, limiting Moscow’s ability to access its overseas reserves.
The idea is to “further isolate Russia from the international financial system”, a joint statement from the western members of SWIFT said, according to media reports. Russia relies heavily on this system for its key oil and gas exports.
Headquartered in Belgium, the SWIFT facilitates transactions between over 11,000 banks and financial institutions across the globe. It plays a pivotal role in supporting the networked, global economy, but has no authority to make sanction decisions itself. Top officials of the major economies manage it.
Excluding certain Russian banks from the SWIFT network used for trillions of dollars worth of transactions will hit its economy hard. The White House claimed it will make Russia rely on “the telephone or a fax machine” to make payments.
When Iran was cut out of the system in 2012, as part of sanctions over its nuclear program, it lost 30 percent of its foreign trade.
Curbs on Russia’s central bank will stop it from using its currency to limit the effect of sanctions. Russia has been building up a cushion of foreign currency to protect its banks, but this new measure will significantly decrease the reserves available.
