The isolation of Russian banks from SWIFT, the world’s largest financial messaging network, has been described as the “nuclear option” of sanctions imposed in connection with Russia’s aggression against Ukraine. Unfortunately, it may have negative consequences for the banking system around the world, among other things, undermining confidence in the US dollar as a global currency.

On the other hand, the ban on the export of modern technologies to Russia is a well-known and used punishment in not so distant times of the Cold War. In most cases, it does not lead to immediate results, but in the long run it slows down significantly and hinders the development of the economy.

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You can live without SWIFT, but it’s hard

The outage from the SWIFT network means that most international transactions cannot be completed and can cripple the economy at least for a while. Decoupling from the international financial system severely limits the ability of companies to do business on a global scale.

SWIFT is currently in use by more than 11 thousand. Financial institutions in 209 countries. Under the supervision of the central banks of the G10 countries, the SWIFT payments network uses unified and secure tokens that allow financial institutions to send and receive information such as instructions for transferring funds abroad.

The SWIFT network is essential for cross-border trade because it enables businesses in one country to secure payments in another. For example, a company in the European Union that buys Russian products must use SWIFT to transfer money from a local bank to a Russian merchant account.

Russian President Vladimir Putin may not be concerned about the economic hardships caused by sanctions. But Russia’s sanctioned banks are largely controlled by Russian oligarchs, and Putin may be interested in them.

This is a double-edged economic weapon. Its direct effect is to prevent the possibility of making payments or transfers by persons or companies that have accounts in different banks. For example, Russians cannot pay by card (or withdraw cash from ATMs) in most countries, and vice versa, people coming to Russia cannot pay for their purchases or pay cash at the hotel without cash.

Here, however, potential problems with the supply of Russia’s main export commodity, that is, gas, come to the fore. The suspension of its supplies would impede a significant inflow of Russian revenue (40% of Russian revenue from the sale of oil and gas goes through the SWIFT network), but at the same time, there are serious problems for the economies of some European countries, including Poland. .

For example, in Germany, 65% of the natural gas used in the economy is imported from Russia. And if the German economy is disrupted, this will have a significant negative impact on the rest of Europe, because Germany is the largest economy in Europe and in terms of GDP, and it is the fourth in the world (after the United States, China and Japan).

Hence, some EU countries, incl. It was Germany that came close to the idea of ​​introducing this “nuclear punishment” with a large reserve.

In addition, it may undermine confidence in the US dollar as a global currency and the SWIFT system, which was previously considered an apolitical network. It can also accelerate the creation of alternatives, such as increasing trade in local currencies or using cryptocurrencies. It is worth noting that countries such as China, Iran or India already trade in local currencies to a large extent.

At the same time, in 2014 Russia created its own SFP banking network in response to the then-emerging threat of blocking access to the SWIFT system. There is also a Chinese alternative to SWIFT – this is CiPS (Interbank Cross-Border Payment System). There are also plans to integrate the Special Program for Food Security with CiPS.

Export restrictions on Russia

“Unprecedented export bans and controls from the United States and the European Union will cut off more than half of Russia’s high-tech imports, restrict Russia’s access to critical technologies, weaken its industrial base and undermine Russia’s strategic ambition to influence the world stage,” said Joe Biden. President of the United States.

These sanctions aim to prevent the export of advanced and modern technologies used especially in the Russian defense, aviation and naval sectors.

The restrictions apply to US products, but also to products manufactured in other countries using US software, technology, or hardware. The ban on exports to Russia includes semiconductor and communications systems, coding and laser systems, various sensors, navigation systems and avionics.

China is able to fill some supply gaps, but not all. Therefore, sanctions will harm Russian producers who imported various types of components manufactured in different countries of the world. In particular, they will have to adjust supply chains, payment systems, and product lines.

But be aware that semiconductor chip exports and supply chains are relatively easy to control as they are manufactured by a small number of companies. Compliance and enforcement of sanctions on a global scale will be difficult for general-purpose products and ingredients.