Rishi Sunak targets Russia with fresh banking sanctions

The UK government has joined with the US and the EU to announce new sanctions against Russia’s central bank.

It has banned British people and businesses from making transactions with the Russian central bank, its finance ministry and its wealth fund.

The move is designed to cut off Moscow’s major financial institutions from Western markets.

Chancellor Rishi Sunak said it “demonstrates our determination to apply severe economic sanctions”.

He said the new sanctions “demonstrate our steadfast resolve in imposing the highest costs on Russia and to cut her off from the international financial system so long as this conflict [with Ukraine] persists”.

The government said its package of sanctions “will devastate Russia’s economy and targets Vladimir Putin directly and his inner circle including Sergey Lavrov”.

It said it intends to make “further related designations” this week, alongside the US and EU.

The governor of the Bank of England, Andrew Bailey, is due to meet chief executives of High Street banks and building societies on Monday to discuss the impact of excluding Russia from Swift, an international payment system used by financial institutions.

Swift – which stands for Society for Worldwide Interbank Financial Telecommunication – is the global financial artery that allows the smooth and rapid transfer of money across borders.

Banning Russia from using Swift will, for example, hit payments for its key energy and agricultural products.

Mr Bailey said: “The Bank of England continues to take any and all actions needed to support the government’s response to the Russian invasion of Ukraine.”

Central banks are meant to have “sovereign immunity”. Transactions with them are supposed to be free, in order to protect global financial stability.

But these actions from the US, EU and now the UK are designed to promote the financial instability of Russia, as a conscious tactic. They are designed to give Russia and its people a deep recession, even bank runs, as the tangible consequence of their president’s militarism. This has never before happened with G20 nations.

The UK this morning joined the efforts, “prohibiting” transactions of the Russian central bank, rendering its $630bn currency reserve war chest useless in sterling, as well as dollars and euros.

Moscow had successfully deployed the reserves on invasion day to contain the rouble’s slide. This morning the Russian currency is in free fall, down 40% at one point to new, unthinkable all-time lows. Moscow has had to raise interest rates to 20% and introduce controls on investments to try to contain the fall.

Over the weekend there were already reports of queues at cash machines, now the central bank must reassure the Russian public that it is printing enough roubles to sustain their demand. The value of that currency internationally will be rather more difficult to protect.

This is more than a financial sanction, it is a form of economic war. and it is designed to provoke social and political instability for the Kremlin.