By ELLEN KNICKMEYER, FATIMA HUSSEIN and KEN SWEET, Associated Press
WASHINGTON (AP) — The United States on Saturday joined its European allies in dramatically increasing financial sanctions against Russia for its invasion of Ukraine, after the West’s first rounds of sanctions failed. to dissuade Russian President Vladimir Putin in his military offensive.
Two of the key new measures target the heart of the Russian financial system, its Central Bank, and cut off an unknown number of Russian banks from the SWIFT financial network. SWIFT is a lifeblood of commerce and global banking that transfers money from bank to bank around the world.
US and European officials made it clear they were still working to implement the sanctions and said they would be careful not to impact European purchases of Russian natural gas.
U.S. officials said the moves would depress the value of the Russian ruble and deepen its financial isolation. It is the latest and toughest of the new sanctions since Russian forces entered Ukraine late last week.
Back to the measurements of Saturday and the previous ones. Altogether, they represent potentially some of the harshest penalties imposed on any nation in modern times.
STRIKE AT THE CENTRAL BANK OF RUSSIA
New restrictions the United States, European Union and United Kingdom have announced for Russia’s Central Bank would limit the Kremlin’s ability to access the more than $600 billion in reserves there. If the West is able to implement Central Bank restrictions as it wishes, it will cripple Russia’s ability to prevent the value of the ruble from collapsing amid tougher Western sanctions.
The likely outcome, U.S. officials told reporters on Saturday: The Russian ruble plummets, triggering spiraling inflation there.
Specifically, by limiting Russia’s ability to sell its international reserves, the Central Bank’s actions would mean that the Kremlin would lose its best tool to back the Russian currency.
Bank runs, as Russians line up at banks trying to get their ruble deposits and convert them into safer dollars, are likely to get worse, said Clay Lowery, executive vice president of the Institute of International Finance. And the run on dollars inside Russia would lead to a drain on central bank reserves.
Combined with new SWIFT limits announced by Europe and the United States, the Central Bank’s measure is “likely to cause serious damage to the Russian economy and its banking system,” Lowery said.
Going after a country’s central bank is a rare but not unprecedented move by the international community, and a powerful one.
Saturday’s decision includes removing major Russian banks from the SWIFT financial messaging system, which shuffles countless billions of dollars daily between more than 11,000 banks and other financial institutions around the world.
Allies on both sides of the Atlantic also considered the SWIFT option in 2014, when Russia invaded and annexed Ukrainian Crimea and backed separatist forces in eastern Ukraine. Russia then declared that kicking him out of SWIFT would amount to a declaration of war. The allies – since criticized for responding too weakly to Russia’s aggression in 2014 – then abandoned the idea. Since then, Russia has tried to develop its own financial transfer system, with limited success.
The United States has already succeeded in persuading the Belgian-based SWIFT system to expel a country – Iran, because of its nuclear program. But kicking Russia out of SWIFT could also hurt other economies, including those of the United States and key ally Germany.
The disconnection of SWIFT announced by the West on Saturday is partial, leaving Europe and the United States the option of further tightening sanctions later.
Western officials refrained from including the SWIFT ban in the early rounds of sanctions, in part because of the collateral impact it would have on other economies that buy Russian oil and natural gas.
Officials said they would work to limit the impact of the restrictions on other economies and European purchases of Russian energy.
CUT RUSSIAN BANKS FROM US DOLLAR
Previous sanctions last week, launched hours after Russia announced its offensive, included sanctions targeting major Russian banks that hold nearly 80% of all banking assets in the country, the Treasury Department said.
This includes the two largest in Russia: SberBank and state-owned VTB. Together they hold nearly $750 billion in assets, the United States said, more than half of Russia’s total total.
Thursday’s sanctions against banks wield the unique power the United States has through the dollar, the currency of choice in business transactions around the world.
The targeted banks normally do tens of billions of dollars in dollar business per day. The US is now cutting them off from the US financial system and the US dollar. The goal is to make everyday business and international trade much more difficult for banks and Russia.
Other US measures target major public and private companies in Russia, aiming to make it harder for them to raise funds to invest and operate.
The US has also gone after more Russian elites, sanctioning bankers and other powerful Putin associates in Russia’s key financial, political and security circles.
RUSSIA’S HUNGRY CORPORATIONS, AMERICAN HIGH-TECH MILITARY
The export controls announced by the Biden administration earlier in the week included another particularly strong piece of leverage the United States holds — American semiconductors and other advanced high-tech equipment.
President Joe Biden has said new US export limits will deprive Russia of more than half of its current high-tech supply. It will “deal a blow” to Russia’s goals to modernize its military, vaunted aerospace, space program, shipping and other industries, he said.
By “reducing their ability to be economically competitive,” the limits of high technology will be “a blow to long-term strategic ambitions,” Biden said.
U.S. export controls are set to deprive Russian industries and the military of high-tech U.S. components that help warplanes and passenger planes fly and make smartphones smart, as well as other software and equipment advanced electronics that power the modern world.
The United States said the European Union, Japan, Britain and other countries were also cooperating to starve Russia of high-tech components.
The US response could add Russia to the most restrictive group of countries for export control purposes, placing them with Cuba, Iran, North Korea and Syria.
They limit Russia’s ability to obtain integrated circuits and products containing integrated circuits, due to the global dominance of US software, technology and equipment. The impact could extend to aircraft avionics, machine tools, smartphones, game consoles, tablets and televisions.
However, US export restrictions would risk motivating companies to seek alternatives elsewhere, including in China.
Sweet contributed from New York.
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