President Joe Biden is targeting Russia’s central bank with new restrictions designed to leave Moscow “defenseless” against international sanctions as Western officials move to expel key Russian banks from the global financial system in retaliation for the invasion of Ukraine.
“Russia’s supposed sanctions proofing of its economy is a myth,” a senior administration official told reporters Saturday while Russian forces intensified their assault on Kyiv. “What we’re committing to do here is to disarm the Central Bank.”
The new restrictions will prevent Russian officials from exchanging their “war chest” of U.S. dollars, Canadian dollars, and euros for Russian currency held overseas by Western individuals. That measure will undercut the value of the ruble as allies launch a multifaceted economic offensive to punish Putin and his associates while stoking domestic Russian anger over the war.
“You’ve heard about ‘Fortress Russia,’ the war chest of $630 billion of foreign reserves,” the senior administration official said. “It’s impressive, but it’s only impressive if Russia can use those reserves. Russia has to be able to sell those reserves and buy rubles to support its currency.”
The Central Bank restrictions accompanied an announcement that European Union leaders have agreed “to cripple Putin’s ability to finance his war machine,” as European Commission President Ursula von der Leyen put it, by expelling “a certain number of Russian banks” from SWIFT — the electronic system that allows banks and other financial institutions around the world to communicate with each other about sending and receiving payments.
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“As Russian forces unleash their assault on Kyiv and other Ukrainian cities, we are resolved to continue imposing costs on Russia that will further isolate Russia from the international financial system and our economies,” Western leaders said in a joint statement. “We stand with the Ukrainian people in this dark hour. Even beyond the measures we are announcing today, we are prepared to take further measures to hold Russia to account for its attack on Ukraine.”
U.S. and European officials hope to “minimize the spillovers to Europe” by developing alternative ways to allow the purchase of Russian natural gas, according to the senior administration official, but the exact method of how to do so remains unclear. Officials at the expelled institutions would continue to have the prerogative “to use a telephone or a fax machine” to do business, provided they are not among the banks already laboring under separate sanctions, but the United States believes that workaround exists more in theory than in practice.
“In likelihood, most banks around the world will simply stop transacting all together with Russian banks that are removed from SWIFT,” the senior administration official said.
Those measures attempt to hammer Russia with the kind of economic sanctions that Congress imposed on Iran during Barack Obama’s presidency, in the years prior to the negotiation of the 2015 Iran nuclear deal, and to do so with the support of Western allies across Europe and Canada.
“It has been clear to many of us for years, but now the world clearly believes that Russia is officially a pariah state,” Senate Foreign Relations Chairman Bob Menendez, a New Jersey Democrat, said Saturday. “As the free world considers additional sanctions, particularly on the institutions and oligarchs who continue to enable Putin, we must spare no effort to make the invasion of Ukraine costly for Putin, Russian elites, and the Russian economy.”
Russian President Vladimir Putin has tried to preempt such a Western maneuver through a mix of financial and diplomatic measures. He acknowledged the attempt to establish an “economic fortress” in November, as Russian forces assembled more openly around Ukrainian borders, although he characterized it as “simply raising the level of our sovereignty.” Kremlin officials aspire to develop a plan with China to deprive Washington of the ability to hobble another economy by restricting their access to the international financial system, but Putin may have overestimated China’s comfort with the Russian assault.
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“The latest signs suggest that China’s not coming to the rescue,” the senior administration official said. “For years and years, China has tended to respect the force of U.S. sanctions.”
