US-led Economic Assault Targets Fortress Russia

President Biden is imposing new limits on Russia’s banking system to render Moscow “vulnerable” to international sanctions.

This comes as Western officials strive to withdraw important Russian banking institutions from the world financial system in punishment for the invasion of Ukraine.

Severe Limitations

Under the new limitations, Russian authorities will not exchange their “war chest” of US dollars, Canadian dollars, and euros for Russian cash held abroad by Westerners.

This measure will erode the ruble’s value as allies wage a complex economic onslaught to punish Putin and his associates while igniting Russian public outrage over the war. 

The Central Bank prohibitions came on the heels of a declaration by European Union leaders that they agreed to “hijack Putin’s resources to fund his military machine” by expelling “a certain number of Russian banks” from SWIFT.

This digital system enables financial institutions worldwide to communicate about sending or receiving payments. 

“As Russian forces advance on Kyiv and other Ukrainian cities, we are committed to continuing to impose penalties on Russia that further isolate it from the global banking markets and our economies,” Western leaders said in a joint statement.

“We stand in solidarity with the Ukrainian people during this trying time. We are ready to take additional steps to hold Russia accountable for its war on Ukraine in addition to the ones announced today.”

According to the senior government source, the US and European authorities seek to “minimize spillovers to Europe” by devising alternate mechanisms for the purchase of Russian natural gas; although the particular technique remains unknown. 

Per the US, officials at ejected institutions would retain the ability to conduct business through “telephone or fax machine,” provided they are not among the institutions already subject to separate sanctions.

The US believes this workaround is more theoretical than practical. 

China’s Willingness

The senior administration source said it is likely the majority of banks worldwide will simply stop trading with Russian banks that are no longer SWIFT members.

These proposals seek to hit Russia with the same type of economic sanctions that Congress put on Iran during Barack Obama’s presidency (in the years preceding the 2015 Iran nuclear deal’s negotiation) with the cooperation of Western allies throughout Europe and Canada.

“Many of us have known for years, but the world today knows unequivocally that Russia is a pariah state,” Senate Foreign Relations Committee Chairman Bob Menendez, a New Jersey Democrat, said Saturday.

“As the civilized world considers new sanctions, particularly against the institutions and oligarchs that continue to aid Putin, we must make the assault on Ukraine as costly as possible for Putin, Russian oligarchs, and the Russian economy.”

President Vladimir Putin of Russia has attempted to thwart such a Western maneuver through a combination of financial and diplomatic measures.

He acknowledged the November attempt to construct an “economic fortress,” as the Russian military gathered more openly around Ukraine’s borders, but described it as “merely enhancing the level of our sovereignty.” 

Officials in the Kremlin hope to collaborate with China to deprive Washington of the capacity to stifle another economy by denying it access to the global financial system.

However, Putin may have misjudged China’s willingness to accept the Russian assault.

“The latest indications imply China will not come to our aid,” the senior administration official stated. “For years and years, China has generally complied with the tenacity of US sanctions.”