The US and western allies will place sanctions on Russia’s central bank and remove some of the country’s lenders from the Swift global financial messaging system, in their harshest response yet to the invasion of Ukraine.
In a joint statement on Saturday, the US, UK, Canada, France, Germany, Italy and the European Commission said they would prevent the Russian central bank from using its international reserves to undermine broader sanctions.
“[Vladimir] Putin’s government is getting kicked off the international financial system,” said a senior US official, who added that the measures would push the Russian currency “into freefall”.
The leaders said they would eject some unnamed Russian banks from Swift, ensuring they are “disconnected from the international financial system” and harming their ability to operate. They also vowed to crack down on “golden passports” that let wealthy Russians buy citizenship, and to impose sanctions on officials and elites close to the government.
The joint action on sanctions is an escalation in the west’s financial and economic response to Russia’s invasion. “We will hold Russia to account and collectively ensure that this war is a strategic failure for Putin,” the leaders said in their joint statement.
The Biden administration official said Putin had turned Russia into a “global economic and financial pariah”.
“What we are committing to do here is to disarm the central bank,” the official said, adding that the action would affect all of the institution’s roughly $630bn in foreign reserves.
“Without being able to buy the rouble from western financial institutions . . . Putin’s central bank will lose the ability to offset the impact of our sanctions,” he said. “The rouble will fall even further, inflation will spike and the central bank will be left defenceless.”
European Commission president Ursula von der Leyen said she would propose to EU leaders that they should “paralyse the assets of Russia’s central bank” to freeze its transactions and make it impossible to liquidate assets.
Josh Lipsky, director of the Atlantic Council’s Geoeconomics Center who previously worked at the IMF, said before the announcement that hitting the central bank would be an “extraordinarily significant and damaging move” to Russia’s economy.
“A G20 central bank has never been sanctioned before. This is not Iran. This is not Venezuela,” said Lipsky.
Edward Fishman, a former US official now at the Center for a New American Security, said it could present a “devastating blow” to the Russian economy that would eclipse the significance of a Swift ban. The US has previously sanctioned the central banks of only Iran, Venezuela and North Korea.
A US official declined to say if Washington would sanction the central bank further by adding it to the Treasury’s “Specially Designated Nationals” list, which Fishman described as “the single most impactful sanction that you could apply to Russia, and you could do it with a stroke of the pen”.
“It would render a sizeable chunk of their foreign exchange reserves unusable overnight,” Fishman said.
Such a move would ban US entities from dealing with the central bank, which would mean institutions would be “skittish about moving any assets on behalf of the Russian central bank”, he said.
Zelensky had pleaded with western capitals to use Swift to pressure Russia. Cutting banks out of the network will make it more difficult for Russians to make cross-border transactions.
Swift said on Saturday that it was “engaging with European authorities to understand the details of the entities that will be subject to the new measures, and . . . preparing to comply upon legal instruction”.
The body has found itself in the spotlight during international crises, most notably over Iran’s nuclear programme. In 2012 and 2018, it was pushed to shut out Iranian banks targeted by sanctions. The US official said the new move against Russia was the “Iran model”.
The goal will be to avoid undermining mechanisms for western economies to purchase energy from Russia.
The allies have not finalised the details, but will either carve out certain energy-focused banks or use product definitions in the Swift system to permit energy-related transactions.