February 28, 2024

Taylor Daily Press

Complete News World

How Sanctions Are Impacting Russians Across The Globe

The recent Russian invasion of Ukraine shocked the world and drew unprecedented international condemnation of the Russian Federation and its rulers. Whilst NATO and the “Western” powers have made it clear they have no intention of launching a military intervention, they have responded with a wide and deep package of sanctions. Russians are currently having difficulties in transferring money internationally, issuing a cross-border payment, as they cannot make any kind of SWIFT transfer and transferring money from USA to Russia is now impossible. In this post, we will look at what these sanctions are and how they are impacting Russans across the world.

Despite only having an economy comparable to that of Italy, Russia still packs a fair bit of financial clout. For example, large (and exclusive) parts of London are owned by Russian citizens of companies and Oligarch Roman Abramovich even managed to acquire Chelsea FC, one of England’s biggest football clubs. And then the Russian diaspora is a sizable one with Russia enclaves all over the world. However, this all looks set to end as the unprecedented financial sanctions begin to bite. Let’s break this down into detail.

Removal From The SWIFT Transfer Network

The SWIFT banking system is the international network which banks use to connect with one another. When you go on holiday and withdraw cash at a foreign ATM it is because of SWIFT and if you have ever received payment for something from an overseas eBay buyer it is because of SWIFT.

At the end of February, Russia was kicked out of SWIFT. This means that Russian banks are unable to do any business with banks outside of Russia and cannot send or receive money internationally.

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The consequences of this are real and severe. Russian holiday makers in Egypt and India woke up on the morning of Saturday 28th February to find their bank cards would not work and Russian online shops were suddenly unable to receive payment from foreign clients putting a lot of businesses out of business overnight. Even online payment services like Wise and Remitly have announced they won’t be handling payments into or out of Russia.

Of course, this also impacted the value of the Russian ruble which was already in freefall; that said, in reality this makes very little difference as the Rouble was removed from forex markets when the country was kicked out of SWIFT.

Trade Tariffs and Cross-Border Payment Problems

Whilst some countries have curtailed all trade with Russia, others have simply imposed steep tariffs. For example, Russian vodka sold in the UK is now subject to a 30% tariff making it too expensive for most consumers, and Russians wishing to import goods from around the world will now be paying a lot more for them.

And of course, any Russian business trading globally has to figure out how to send or receive money without access to SWIFT.

Online Marketplaces and Transferring Money Internationally

A number of online marketplaces unilaterally closed Russian owned shops and kicked their proprietors off the platform. Russian designers have been kicked off Etsy, Russian sellers banned from Amazon and Russian landlords citizens kicked out of Airbnb (regardless of where they live or where the properties are).

Note that this ban affects all Russian nationals regardless of where they actually live which has attracted some criticism from ex-pat Russians who have been living in the west for over 20 years.

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Again though, as many Russian store owners were unable to actually get paid without SWIFT, losing the store was rendered immaterial.

Personal Sanctions

Tragically, the sanctions hit a lot of ordinary Russians very hard whereas the ruling Oligarchs who engineered the war probably don’t care all that much about losing an Amazon store. However, sanctions have also been issued against a number of named Russian individuals including President Vladimir Putin, Russian Minister of Defence Sergeo Soigu and a growing number of Oligarchs.

The Oligarch sanctions are especially interesting as this small but powerful group of notoriously wealthy Moscovites has interests scattered around the world. Luxury super-yachts belonging to Oligarchs have been seized by customs officials in France and Germany, and in the UK, Chelsea Football Club has been placed into administration.

How Have Russians Responded?

Whilst SWIFT remains the biggest and most important global banking network, it is not the only one. In an attempt to rival the USA’s banking hegemony China launched the CIPS system in 2014 and there is now speculation that China will allow Russia to use it to indirectly funnel money around the world.

There is also a “black market” for rubles where Russians travelling internationally can change their currency into dollars and euros to finance their trips.

In terms of the online marketplaces, the workaround Russian entrepreneurs are adopting is to register under a second passport (of they have one) or to find a non-Russian to register as the business owner which will facilitate re-admittance.

Transferring Money From USA to Russia Using Crypto

Russia was already a big market place both for crypto current traders and miners and the recent sanctions have only served to exacerbate this. Blockchain technology is decentralised, unregulated, operates independent of SWIFT and as such Russians can still use BitCoin and other Crypto currencies to send or receive money from anywhere on earth, even the US.

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That said, they will struggle if they ever want to convert their crypto tokens to fiat currency as most exchanges are regulated and as such unable to service Russian customers.

Final Thoughts

Some critics argue that financial sanctions are simply inadequate. Russia is bombing Ukraine and killing civillians each day and as such, seizing yachts and closing etsy stores does pale in comparison. Still, the sanctions are biting hard and Russian citizens are unable to initiate a SWIFT transfer or cross-border payment.

The issues with transferring money internationally will hurt the Russian economy and the difficulties in transferring money from USA to Russia will deprive Putin’s war machine of much needed US dollars, which may eventually bring its grinding to a halt.