Stemming from the Russian invasion of Ukraine, the U.S. and other nations imposed financial sanctions that included removing several Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT). While they did decrease the value of the ruble, the Center for Strategic and International Studies (CSIS) has reported that this could lead to negative consequences like Russia joining with China in building its own international banking system.
This banking system could be not centered around the American dollar and would appeal to other countries that worry about being targeted by U.S. sanctions.
The report by CSIS said that Russia would logically look to China. China has already been striving for other countries to use the renminbi as an international currency. Alternatives to SWIFT are more expensive and less secure but they do exist. Since 2015 China has been working to build an international settlement system but they have continued to use SWIFT when seeing cross-border payments.
Financial sanctions against Russia have been especially successful due to the global prominence of the U.S. dollar. The authors of the report said that policymakers should consider nonfinancial sanctions as financial sanctions could be less effective in the future due to the potential that Russia would separate itself from the U.S. dollar and SWIFT altogether.
In March, SWIFT announced the removal of seven Russian entities from the network and noted that the actions taken by U.S., U.K., E.U. and Canada were to help end the Russian invasion. President Joe Biden took to Twitter in March, as well, to tell that this has been effective.
“As a result of our unprecedented sanctions, the ruble was almost immediately reduced to rubble,” Biden tweeted. “The Russian economy is on track to be cut in half. It was ranked the 11th biggest economy in the world before this invasion — and soon, it will not even rank among the top 20.”
A May 3 report from the Congressional Research Service (CRS) asserted that Russia's partial removal from SWIFT resulted in a 60% depreciation of the ruble within two weeks. The International Monetary Fund (IMF) has predicted that inflation in Russia will reach 24% and unemployment will double by the end of 2022, according to the report.
