Saturday, December 13, 2014

More on Russia - Talk of War if Russia is cut off from SWIFT?

The New York Observer runs this article quoting a Russian banking official (and close friend of Putin) as saying that cutting Russia off from SWIFT will mean war (not just financial war). The article says a group of US Senators, Britain, and Poland are in favor of doing this, but the rest of Europe is unsure about it. 

If something like this were to set off a real military conflict between Russia and the West, all kinds of unpredictable change to the monetary system might happen sooner rather than later. Below some quotes from this article. Read the full article to get context.

"A top Russian banker and close personal confidante to President Vladimir Putin has sent a strong message to the West."

"Vladimir Putin does not buy the notion that tough economic sanctions, imposed on Russia by US and its European allies, are merely a punishment for Russia’s policies toward Ukraine, its annexation of Crimea, and its support of separatist fighters in the East Ukraine. Earlier today, speaking to the representatives of the Federal Assembly in Kremlin, he claimed that “the crisis in Ukraine was just a formal pretext for sanctions.”  He was confident that “If all this had never happened, any other excuse would have been created” as a result of the “policy of containment [of Russia] which was invented not yesterday, but has been held against our country for decades, if not centuries.”

"Mr. Putin’s tough rhetoric reflects the fact that economic sanctions on Russia—and counter-sanctions by Russia toward the countries of the European Union—are from his perspective nothing more than a substitute for the old-fashioned wars. Indeed, they damage the economies of all sides without firing a single shot."

. . . . . .
"But there is one looming threat that Russia seems to have no answer for so far. And it is the possibility of kicking Russia out of SWIFT—the electronic bloodstream of the international bank transaction system. The possibility was raised earlier this summer, and at the time, Bruce Johnston, a London-based analyst at Morgan, Lewis & Bockius told Business Insider, “This would be a major escalation of the sanctions. Most international payments flow through SWIFT. Banning Russian banks and companies from SWIFT would effectively cut off Russian businesses from the rest of world.”

. . . . . .

"Yesterday, the German newspaper Handelsblatt published an interview that has yet to be printed in any English-language newspaper with the head of Russia’s second largest VTB-Bank (Foreign Trade Bank), Andrei Kostin. Mr. Kostin stated: “Of course, there is a plan B [in the case of shutting Russia off from the SWIFT bank system], but in my personal opinion it would mean war—if this type of sanction will be introduced."

He went on to add:

"If Russian banks’ access to SWIFT will be prohibited, the US ambassador to Moscow should leave the same day. Diplomatic relations must be finished. Banking is the most vulnerable part of the Russian economy because the system is based so strongly on the dollar and the euro.”

My added comments: In an earlier blog post here we noted that Russia was speeding up its plan to create an alternative to the SWIFT system by May 2015. Here is an update on that.

It's always hard to tell if things like this will really happen or the various sides are bluffing. But if Russia gets cut off from SWIFT and a real war (not just a financial war) gets started over that, 2015 will get more than just interesting. 

Added notes: Here are a couple of other Russia related stories readers may find of interest:

Washington Post: Moscow to close Hospitals

Russia Direct: A Review of Putin's Annual Address to the Nation

Added note: I have gotten feedback from more than one reader here asking me "Aren't we already at war financially with Russia?". The answer is yes, but I see this comment by this Russian Bank Official as talking about a ramped up military conflict (much more than a few skirmishes in the Ukraine). Kicking out the US Ambassador would be a signal that they are done talking and ready to fight if they are kicked out of the SWIFT system. 

Most people have never heard of SWIFT, but they sure know what a surface to air missile is. When they see those getting fired off over in Europe, the war will seem more real to the average person who does not connect the financial war with his daily life. Let's hope that never happens. The risk of it escalating out of control is too great. Hopefully, both sides know that.

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