By ZEKE MILLER, RAF CASERT, ELLEN KNICKMEYER and KEN SWEET – Associated Press
WASHINGTON (AP) — The United States and European nations on Saturday agreed to impose their most potentially crippling fines yet on Russia over its relentless invasion of Ukraine, targeting central bank reserves that prop up Russia’s economy and some Russian banks separate from an important place global financial network.
The decision, announced as Ukrainian forces fought on Saturday to hold Russian forces back from the Ukrainian capital and residents sheltered in metro tunnels, basements and underground garages, has the potential to ease the pain of Western retaliation for the invasion of President Vladimir Putin far more penalties than before on ordinary Russians.
“Putin has embarked on a path aimed at destroying Ukraine, but whatever he is doing is actually destroying his own country’s future,” said European Commission President Ursula von der Leyen.
The European Union, the United States, the United Kingdom and other allies have steadily increased the intensity of their sanctions since Russia launched the invasion late last week.
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While US and European officials have made clear they are still working out the mechanisms to implement the latest measures and intend to spare Russia’s oil and natural gas exports, the sanctions overall could potentially be among the harshest imposed on any nation in Russia modern times. If fully implemented as planned, the measures will severely damage Russia’s economy and severely limit its ability to import and export goods.
The US and Europe allies announced the moves in a joint statement as part of a new round of financial sanctions designed to “hold Russia to account and together ensure this war is a strategic failure for Putin.”
The central bank’s restrictions target access to the more than $600 billion in reserves the Kremlin holds and are designed to prevent Russia from supporting the ruble as it depreciates amid tightening Western sanctions.
US officials said Saturday’s moves were designed to send the ruble into “freefall” and encourage rising inflation in the Russian economy.
The ruble’s fall would likely send inflation skyrocketing, hurting everyday Russians and not just the Russian elites who were the target of the original sanctions. The resulting economic disruption, if Saturday’s measures are as harsh as described, could mean Putin faces political unrest at home.
Analysts predicted an increasing Russian bank run and falling state reserves as Russians scramble to sell their target currency for safer assets.
US officials noted that previously announced sanctions have already impacted Russia, sending its currency to its lowest history against the dollar and giving its stock market its worst week on record.
Saturday’s move also includes removing key Russian banks from the SWIFT financial messaging system, which moves untold billions of dollars a day at more than 11,000 banks and other financial institutions around the world.
The fine print of the sanctions was still being ironed out over the weekend, officials said, as they work to limit the impact of the restrictions on other economies and European purchases of Russian energy.
Allies on both sides of the Atlantic also considered the SWIFT option in 2014, when Russia invaded and annexed Ukraine’s Crimea and supported separatist forces in eastern Ukraine. Russia declared at the time that to throw it out of SWIFT would be a declaration of war. The allies – who have been repeatedly criticized for responding too weakly to Russia’s 2014 aggression – shelved the idea at the time. Since then, Russia has attempted to develop its own financial transfer system, with limited success.
The US has previously managed to persuade the Belgium-based SWIFT system to kick out one country – Iran – over its nuclear program. But kicking Russia out of SWIFT could also hurt other economies, including the US and key ally Germany.
Rarely have the West and its allies unleashed a full salvo of their available financial weapons on a country. Iran and North Korea, two previous targets, played far smaller roles in the world economy, while Russia, with its vast oil reserves, plays a much larger role in world trade and parts of Europe depend on its natural gas.
The SWIFT split announced by the West on Saturday is partial, leaving room for Europe and the United States to escalate the penalties later. Officials said they have yet to fully agree on which banks would be cut off.
Announcing the measures in Brussels, European Commission President von der Leyen said she would urge the bloc to “freeze the assets of Russia’s central bank” so that its transactions would be frozen. Excluding several commercial banks from SWIFT “will ensure that these banks become disconnected from the international financial system and affect their ability to operate globally,” she added.
“Locking down the banks will prevent them from conducting most of their financial transactions worldwide and will effectively block Russian exports and imports,” she added.
Getting the EU on board for sanctions against Russia via SWIFT was a tough process as EU trade with Russia was worth €80 billion, about 10 times that of the United States, which was an early supporter of such measures.
Germany in particular had resisted the measure because it could hit them hard. But Foreign Minister Annalena Baerbock said in a statement: “Following Russia’s shameless attack… we are working hard to limit the collateral damage of[Russia’s]disconnect from SWIFT so that it hits the right people.” What we need is a targeted functional restriction of SWIFT.”
As a further measure, the Allies announced that they would “take measures to restrict the sale of citizenships — so-called golden passports — that allow wealthy Russians affiliated with the Russian government to become citizens of our countries and have access to our financial systems.” obtain”.
The group also announced this week the creation of a transatlantic task force to ensure these and other sanctions against Russia are effectively implemented through information-sharing and asset freezes.
“These new sanctions, which include the suspension of several Russian banks from SWIFT and sanctions against the Central Bank of Russia, are likely to cause serious damage to the Russian economy and its banking system,” said Clay Lowery, executive vice president of the Institute of International Finance. “While details on how the new sanctions will affect energy are still pending, we know that sanctions on its central bank will make it harder for Russia to export energy and other commodities.”
Rachel Ziemba, senior fellow at the Center for a New American Security, said that even without a full SWIFT ban, “these measures will still be painful for the Russian economy. They reinforce the measures already taken earlier this week by making transactions more complicated and difficult.”
Ziemba says how much pain the sanctions will inflict on Russia’s economy depends on which banks are restricted and what measures are taken to limit the central bank’s ability to operate.
“Regardless, this kind of escalating sanctions, banning banks from SWIFT, restricting the central bank, all of these will make it harder to get commodities from Russia and increase pressure on the financial market.”
Meanwhile, the US Embassy in Russia is warning Americans about several reports of non-Russian credit and debit card refusals in Russia. In a tweet Saturday night, the American embassy said the issue appears to be related to recent sanctions imposed on Russian banks following Russia’s invasion of Ukraine. The embassy says US citizens should be armed with alternative means of payment in Russia in case cards are declined. It also reminded US citizens that the State Department advises against travel to Russia.
Casert reported from Brussels and Sweet from New York. Associated Press writers Frank Jordan, Fatima Hussein, and Josh Boak contributed to this report.
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