Kicking Russia out of SWIFT will be a disaster for the US
This move will accelerate global de-Dollarization and destroy the Dollar’s standing as the global reserve currency.
This move will accelerate global de-Dollarization and destroy the Dollar’s standing as the global reserve currency.
Tensions between the US and Russia are at an all-time high since the end of the Cold War and the collapse of the Soviet Union. Currently, tensions between the US and Russia have reached a boiling point due to NATO vs Russian troop stand-off close to Russia’s border. President Biden is working with European allies and partners to sanction Russian banks and currency conversions if Russia were to invade Ukraine. One nuclear option sanction which the White House is considering is to cut Russia off the SWIFT payments system. This will be a disaster for the US Dollar and the US standing on the globe.
SWIFT is the current payments processor and intermediary for financial institutions all around the world. Given Washington’s control over SWIFT, Wall Street and Washington basically have control over global financial payments. From a press of a button, Washington can turn any economy back to the stone age. Due to Iran’s nuclear program, part of sanctioning the country included cutting the country off the SWIFT payment system. Cutting Iran off the SWIFT system basically disconnected the country from the global financial system where no nation can invest, send money, or trade with the country using the global reserve currency, the US Dollar. This made Iran’s economy go to shambled, and the country has been suffering ever since. But cutting Russa off SWIFT will not work.
Seeing the fate of Iran has made leaders in Moscow, and Beijing wakes up to Washington’s global power. Russia, more than China, has been leading the way in de-Dollarization. Russia has sold off all of its US Treasury holdings, and the Central Bank of Russia currently holds more gold than US Dollars in its reserves. From its total $583 billion total Central Bank reserves Euro is the most held currency. Second is gold. From 2018 Dollar holdings have gone down from 40% to 22%, making it the third-largest holding. The Russian Central Bank holds 12% of its reserves in the Chinese Yuan. Many Russian state-owned companies, that engage in a lot of business overseas, have removed the Dollar as its currency of choice for transactions. Russia’s oil giant Rosneft, which is the 10th largest oil company in the world by market cap, just announced that the firm is removing the Dollar from all of its transactions. Gazprom, the world-leading natural gas producer, is building one of the largest infrastructure projects with its Power of Siberia trans-Siberian natural gas pipeline connecting gas deliveries from Siberia to China. All transactions for this project will be done in local currencies. Russia has also removed all Dollar assets from its sovereign wealth fund.
What can Russia do to counter US cutting Russia off from SWIFT?
If Washington were to use this “nuclear option” and cut Russia off the SWIFT system, basically this would be the end of diplomatic relations between Russia and the United States. There will be no more ambassadors, embassies, and cultural exchanges between the superpowers. If this were to happen, expect Russia to recall its ambassador to the US back home and both countries ordering their respective embassies and compounds to shut down.
One of Washington’s goals is to push Germany to shut down the Nordstream 2 Pipeline. By doing this, Washington wants Europe to be dependent on expensive American LNG. If Brussels joins Washington in these sanctions, Russia can divert any European export goods it has to China. To power China’s ever booming economy, the country is very resource hungry. China will definitely pay to have more commodities. China will buy everything from oil and gas, metals, timber, and food (especially, Wheat) keeping Europe in the dark. With high global inflation and food and natural gas prices going up, Europe is going to have a cold and hungry winter without Russian oil, gas, and wheat.
Russia is one of the largest Arms exporters in the world. After the US, Russia is the second-largest arms exporter in the world. Some of Russia’s largest weapons customers include China, India, Vietnam, and Kazakhstan. The country’s S-400 surface-to-air-missile is considered to be the best surface-to-air-missile defense weapon in the world that can counter any aircraft, cruise, or ballistic missile. This is why even countries closely align with the US like Saudi Arabia, India, and NATO member Turkey are interested in purchasing S-400s. Russia can conduct all of these transactions without the dollar with a combination of the Ruble and local currencies. There are no doubt talks going on between Beijing and Moscow to start trading using the Chinese Central Bank Digital Currency. It is confirmed that India and Russia will transact the S-400 purchase using Rubles and Rupees.
If Russia wants to really go after Washington, Russia can freeze US corporate assets. Many American corporations like McDonald’s, John Deere, and Boeing, to name a few, have significant interest in Russia. Many US and European banks like Deutsche Bank, Citi Bank, HSBC, and UniCredit have significant interests in Russia. Freezing these assets will damage Western economies. Russia can punish these companies individually as well. For example, Russia can stop providing Aluminum to Boeing or stop ordering Boeing jets and switch to Airbus for their Aeroflot fleet. This will get the government affairs department of Boeing running to Washington to lobby against its sanctions on Russia.
Leaders in Moscow and Beijing have been watching Washington’s actions. They have seen what dollar dependence has done to countries like Iran, North Korea, and Venezuela and have seen the Dollar’s dominance of global finance to be a national security issue. Both countries have been de-Dollarizing. As the BRICS economies (Brazil, Russia, India, China, and South Africa) have grown significantly, these nations have been discussing trading in local currencies and ditching the Dollars as early as 2010. The US sanctions only accelerate the de-Dollarization process.
Cutting Russia off the SWIFT system will only lead to countries quickly switching to alternatives to SWIFT and the Dollar payment system. Regional trade and economic integration, the Belt and Road Initiative, China’s rise as the number one trading nation in the world, the birth of Eurasia, and Europe and America’s interests diverging over Nordstream 2 and trading with Iran are already leading to finding alternative payments system to SWIFT. The Chinese Central Bank is for sure hoping and praying that the US cuts Russia off SWIFT so that it can start trading with Russia using the Digital Renminbi and introducing the Chinese Central Bank Digital Currency as a new payment system for the world. Russia will immediately switch to trading oil, gas, gold, weapons, and other commodities in either gold, Ruble, or Digital Renminbi, thus decimating the Dollar’s role in global trade and the US economy alongside it. This would also be a boost for Bitcoin.
Finally, from Washington’s many foreign policy blunders since the end of the cold war, one of its biggest blunders would be abandoning and demonizing Russia after the collapse of the USSR. During the 1990s, the Clinton administration encouraged the Russian oligarchy while economists pushed shock therapy to the nation. During the 2000s, NATO pushed all the way to Russia’s border and armed nations bordering Russia with American military equipment and US troops staring down Russia right next to its border. The coup in Ukraine in 2014 lead Russia, provoked by the West, to counter back and take over Crimea. Sanctions, aggression, and misguided policies against Russia by the West have made Russia embrace China, the rise of Eurasia, and de-Dollarization. Cutting Russia off SWIFT will only further accelerate this process.
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