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U.S. and European allies move to cut Russian banks off from SWIFT

SARAH MCCAMMON, HOST:

As Russia continues with its invasion of Ukraine, the U.S., Canada and their European allies, even some that were hesitant about cutting off business with Russia, have announced plans for some of the toughest penalties that can be taken against a country's economy. These moves, which are still being worked out, are planned to be sweeping, punishing Russian elites and even anyone just going to a grocery store in Moscow. NPR's Jackie Northam joins us now to explain how it all works.

Good morning, Jackie.

JACKIE NORTHAM, BYLINE: Morning, Sarah.

MCCAMMON: So first, tell us about what's in the joint statement released this weekend announcing these new sanctions.

NORTHAM: Well, the U.S., the European Commission and allies are planning to cut several Russian banks off of something called SWIFT. And this is a sophisticated messaging system that's used by banks around the world for financial transactions. Billions of dollars are exchanged on SWIFT every day. If the Russian banks are expelled from SWIFT, they won't be able to make or receive payments, which, of course, has a knock-on effect for both Russia and any business it has internationally. The allies have also committed to placing sanctions on Russia's central bank, and this could be key. I spoke with Brian O'Toole, a former Treasury sanctions official, and he's now with the Atlantic Council. And he says those sanctions could freeze most of the country's $630 billion in foreign reserves. And that was Russia's nest egg. Let's have a listen.

BRIAN O'TOOLE: It depends a little bit on what the wording is. But from what they've announced that Russia will not be able to use its foreign reserves, they've taken away the whole fortress Russia thing. So Russia has been saying for months, we don't care about sanctions. We have $630 billion in foreign exchange reserves, and we can bail everybody out. They can't do that anymore.

NORTHAM: And, Sarah, Western allies are also tightening the screws on Russia's elites, the oligarchs and their families by limiting the sale of so-called golden passports. And this is where rich Russians can pay for citizenship in a Western country and then access their financial system. And, you know, all of these measures are to be implemented in the next few days.

MCCAMMON: So what we're talking about here could be unprecedented sanctions, especially if they're on the central bank. Is there going to be a big practical impact on Russia's economy?

NORTHAM: Well, we have to wait for the exact details of the sanctions. But if all of Russia's reserves are frozen, it could cause chaos across the economy. Here's Brian O'Toole again.

O'TOOLE: They're not going to be able to prop up their currency. They're going to have to spike interest rates. That may not do any good. There's going to be massive inflation. The ruble is going to absolutely crash. This will have a systemic effect across the Russian economy because they're walking a tightrope without a safety net. Their safety net was this money. It is essentially now gone overnight.

NORTHAM: And, Sarah, the Western countries imposing these sanctions hope that kind of shock will make Putin fear that this invasion is endangering the economic future of his country and maybe even drive popular unrest.

MCCAMMON: And are there concerns, Jackie, about broader repercussions here for other countries, for example?

NORTHAM: Oh, certainly, there are. I mean, just take a look at the European companies. They have a lot of business dealing with Russia and rely on Russia for natural gas to run their factories. There's a chance President Putin could cut the flow of gas to Europe. But, you know, that would hit Russia's economy, too, because it needs those gas revenues. But, Sarah, probably the big question is, will these sanctions stop the invasion of Ukraine? And, you know, some are concerned that if Putin sees an economic collapse and feels as though he's losing popular support at home, he could get even more aggressive in the war. But, you know, for now, the world is united against Putin in a way that he's not seen since he came to power 20 years ago.

MCCAMMON: That's NPR's Jackie Northam. Jackie, thank you.

NORTHAM: Thanks very much, Sarah. Transcript provided by NPR, Copyright NPR.