In April, US President Joe Biden unveiled a new package of sanctions against Russian businesses and officials, while, at the same time, effectively banning American financial institutions from buying shares in Russian sovereign debt. Officials in Washington described the restrictions as a "proportional" response to alleged meddling by Moscow in the 2020 US presidential election, and assertions Russia was behind the colossal SolarWinds cyber-espionage breach detected last year. The Kremlin has strongly denied both sets of claims.

The UK and the EU have both since rolled out their own sanctions, and there is talk in European capitals of more measures to come. Few moves have been as extreme, though, as the decision to target national debt bonds, which the White House says was designed to hit the country's economy while minimizing the impact on world markets. However, some economists claimed the package of measures was mostly "symbolic," and the new rules could simply be "circumvented" if buyers still wanted to pick up shares in Russian debt.

'A gesture of desperation'

The characteristically blunt Zakharova told the source over the weekend that new economic barriers were "having a complex negative impact on both Russian and Western economies." According to her, the price of playing out hostilities through the financial markets is high, and "estimates of the damage vary, but are well within the hundreds of billions of dollars."

"Unfortunately," the diplomatic spokeswoman said, "the reality of our time has been the increased use of politically motivated unilateral measures by some Western states, mainly the US. We see the sanctions against Russia more and more as a 'gesture of desperation' due to the inability of elites to accept the new realities, abandon their collective groupthink, and recognize Russia's right to determine its own development path and build relations with its partners."

One reason behind this, she claimed, is that Washington and its allies "seem to find it difficult to accept the obvious successes of the Russian economy, the increase in its international competitiveness and the expansion of the presence of quality Russian goods and services on world markets."

While the ruble has been hit hard by falling oil prices, geopolitical uncertainty, and the global recession that has accompanied the Covid-19 pandemic, the country appears more resilient than most of its contemporaries. While a number of other European nations are still languishing in lockdowns, most Russian businesses have been trading consistently with few restrictions since an initial strict quarantine period in the first half of last year.

The governor of Russia's Central Bank, Elvira Nabiullina, has previously said that "the economy is bouncing back rather steadily" and, "given the current positive trends," its analysts have maintained their outlook on GDP growth for 2021 at 3 to 4%. Her bullishness comes at a time when the path back to growth appears uncertain for many countries.

The US insists its approach is simply to send a message that it will not tolerate what it deems as aggressive and malign influence on the part of Moscow. "I was clear with President Putin that we could have gone further, but I chose not to do so," Biden told journalists at the time. "The United States is not looking to kick off a cycle of escalation and conflict with Russia." However, since then, relations have gone from bad to worse, accompanied by diplomatic expulsions and increasingly combative rhetoric coming from both sides.

A SWIFT response

At the end of April, the EU Parliament passed a non-binding resolution in which representatives called for the harshest possible steps to be taken against Russia in the event of an all-out conflict with neighboring Ukraine. Tensions have risen rapidly in recent weeks over fierce fighting in the Donbass between Kiev's forces and those loyal to two self-declared breakaway republics, which have sought support from Moscow.

In such a scenario, the Members of the European Parliament (MEPs) behind the motion said, "Imports of oil and gas from Russia to the EU [should] be immediately stopped." At the same time, the country "should be excluded from the SWIFT payment system, and all assets in the EU of oligarchs [sic] close to the Russian authorities and their families in the EU need to be frozen and their visas cancelled."

SWIFT, a Belgium-based international transaction mechanism, is the cornerstone underpinning the vast majority of cross-border transactions, with more than 30 million financial messages moving through its network each day.

Ukraine has previously issued a request for Moscow to lose the right to make use of the service, even without the kind of conflict described by the MEPs. But Russia has warned that, if implemented, disconnecting its businesses from SWIFT would be seen as an "act of war," and it has expanded domestic alternatives to reduce its vulnerability to Western sanctions.

Speaking at a meeting with his Chinese counterpart last month, Foreign Minister Sergey Lavrov said, "The United States has declared its mission is to limit the technological development opportunities of both the Russian Federation and the People's Republic of China." He added that the dollar should be de-prioritized as the default currency of international markets, and the two nations should move away from the use of "Western-controlled international payment systems. "Zakharova cautioned that "the question of Russia being disconnected from SWIFT is still only hypothetical," but said that "nevertheless, cross-governmental studies are underway to minimize the risks and potential economic damage that would be caused by our country's access to international financial instruments and payment mechanisms being limited." She pointed to the Bank of Russia's own financial messaging system as a possible alternative, with "options for interfacing" it with European, Iranian, and Chinese mechanisms "currently under discussion."

New developments in online finance could also be a route out of dependency on the most common Western-run institutions. The Foreign Ministry spokeswoman added that "Russia is actively studying the opportunities offered by digital technology and their potential for enhancing the sustainability, stability, and independence of the national financial system and means of making payments, with an understanding that digital money could, in the future, become the foundation for an updated international financial system and cross-border transactions."

The move, if realized, would have the potential to undermine the centrality of SWIFT altogether and enable the moving of money despite political intervention.

Ditching the greenback?

Washington's record of introducing sanctions on rival states at short notice has undermined confidence in the dollar, Moscow claims. Lavrov's deputy Foreign Minister, Alexander Pankin, recently warned journalists that the unpredictability of US foreign policy has "called into question the reliability and convenience of using the American currency as the priority currency of deals."

Instead, the minister said, countries are now being "forced to take measures against the risk of economic losses and disrupted transactions. Therefore, there is increasing interest in developing alternative mechanisms. Using other currencies in trade is becoming more and more important on the international agenda."

Zakharova told the source that "a gradual departure from the US-centric configuration of the global monetary system" has already begun. She called for "coordinated steps in this direction" to be taken with the country's trading partners, "not only to help strengthen our national currencies, but to make it possible to minimize the potential economic damage from the introduction of any new restrictive measures by Western countries." Recent deals with China and Turkey, she added, have helped facilitate exactly that.

These disclosures put weight behind Moscow's previously bombastic rhetoric about the importance of reducing American supremacy in financial systems. In one such set of remarks, Deputy Foreign Minister Sergey Ryabkov told Bloomberg in February that it was essential to pre-empt hostile confrontation with the new president, Joe Biden. "We need to barricade ourselves against the US financial and economic system to eliminate dependence on this toxic source of permanent hostile actions," he said. "We need to cut back the role of the dollar in any operations."

Banking on the future

Despite the escalations of recent weeks, Zakharova insisted that Russia was not isolated in the commercial arena. "Only a small number of individual nations are pursuing a hostile foreign policy," she said. "This is to their detriment."

"We do not intend to close ourselves off from the outside world, as those pushing sanctions are trying to get us to do. On the contrary, we are always open for a dialogue on all problematic issues, and ready for equal and mutually beneficial cooperation with all countries – but only on the basis of the principles of equality and mutual respect of each other's interests," the official stated. "Only in this way, we believe, can international relations be sustainable."

Paradoxically, then, Russia's efforts to slash the use of international systems and the US dollar are not intended as a road to anti-free market isolationism. Instead, they are intended as a response to efforts by the Biden White House to cut off the country from international trade and foreign investment, keeping cash and goods flowing with trading partners

 To overcome Washington's approach, Moscow's foreign policy officials clearly believe that taking a step back from financial ties to the West could mean taking two steps forward for the economy.

source:rt.com/Gabriel Gavin