Author`s name Andrey Mihayloff

The eagle and the bear fight: Peace is nowhere near

The United States admits that Russia can be completely isolated from the international financial system in the event of a military invasion of Ukraine, US Undersecretary of State Victoria Nuland said.

As Nuland noted, the United States is already discussing such a scenario with its allies. The de facto isolation would entail consequences for both Russian businesses and Russian citizens, as it would restrict their opportunities for work, travel and trade, she noted. In an effort to keep Russia from aggression, the United States is considering all available options including unprecedented sanctions that can be introduced in stages, Nuland said.

In addition, the United States expressed a hope that the Nord Stream 2 gas pipeline would be shut down should Russia invade Ukraine. The US is in talks with the new government of Germany at this point, and US officials can already see that their counterparts in Germany are prepared for a decisive action against Russia.

Sleepy Joe would rather sleep than sanction Putin

US President Joe Biden, during a conversation with Russian leader Vladimir Putin, also warned that the United States would introduce economic and other measures in the event of a military escalation in Ukraine. Putin responded that sanctions produce no positive effect for anyone, including for the United States.

The Kremlin noted that Biden softened his rhetoric on possible sanctions against Russia during his online talks with Putin. In particular, the Kremlin said, the American president spoke about restrictive measures in a form that was more acceptable than that Russia could hear from US officials before.

USA wants mother of all sanctions imposed on Holy Mother Russia

On December 7, the head of the US Senate International Committee, Democrat Robert Menendez, announced the development of the "mother of all sanctions" against Russia that would be imposed in the event of a military invasion of Ukraine.

"If Putin invades Ukraine, the implications will be devastating for the Russian economy, and also for the Russian people," he said, adding that he had proposed including restrictive measures in the draft defense budget, but would now look for other possibilities to insert them in the legislative framework.

USA throws anti-Russian hysteria bug in media field

On December 6, it was reported that the United States prepared a new package of sanctions against Russia, including measures to disconnect Russia from SWIFT. The authors of the document described it as a pretty damn aggressive package. The package contains a prohibition for large Russian entrepreneurs and people from Putin's team to use American banks and payment systems.

The Kremlin shrugged off all the above information as another wave of media hype. First deputy head of the Federation Council Committee on International Affairs, Vladimir Dzhabarov, said that he was skeptical about the threats from the American authorities and considered disconnecting Russia from the SWIFT system an unlikely scenario.

On December 7, it became known that the United States had abandoned sanctions on Russia's sovereign debt. The US defense budget was presented without corresponding restrictions. In addition, the document did not include sanctions either against the Russian gas pipeline Nord Stream 2 or the Russian individuals suspected of human rights violations.

US to sanction possibility to convert Russian rubles into dollars

The US authorities also consider restrictions on the conversion of the ruble into the dollar, euro and British pound should Russia invade Ukraine, Bloomberg reports, citing knowledgeable anonymous sources.

It is believed, however, that the basic scenario to disconnect Russia from SWIFT and ban currency conversion will not be used. It appears to be part of political bargaining to put pressure on the Russian administration.

In order to prohibit operations to buy dollars for Russian rubles, the US Treasury would need to add the relevant agents to the SDN (Specially Designated Nationals) sanctions list. If put on this list, one will be banned from accessing the American financial system completely. For example, in 2019, the United States added the Venezuelan government to the SDN list, which forced Caracas to pay interest on Russian government loans in rubles rather than in dollars.

It appears, though, that the United States would not want to use blocking sanctions against Russia, because one would also need to freeze the dollar assets of the state too. Therefore, such sanctions could affect bilateral trade and other aspects of relations.

The Russian sovereign fund — the National Welfare Fund — controlled by the Ministry of Finance, has no dollar assets. Yet, about 45 percent of liquid funds are kept in euros and British pounds. In addition, about 21 percent of international assets managed by the Bank of Russia are nominated in US dollars ($119 billion as of the end of the first quarter of 2021), RBC reports.

Currency conversion restrictions will cause severe consequences for all, including ordinary Russian citizens. A Russian holder of a debit card issued by a Russian bank would not be able to pay by card anywhere in the United States, because it would be impossible to convert rubles into dollars. One will not be able to withdraw money from an ATM due to conversion problems either.

The US dollar rules the world, no matter what

Participation in the dollar banking system gives one an opportunity to conduct trade activities around the world, because almost all countries of the world have a developed system of correspondent accounts in US dollars. Neither the ruble, nor the yuan, nor even the euro have such a system of correspondent accounts, Dmitry Timofeev, the chief of the anti-sanctions department of the Ministry of Finance said back in 2019, RBC reports.

Today, most liquid currency pairs include the US dollar. Trade transactions in pairs that do not include the dollar are often carried out through the dollar as an intermediary currency. Accordingly, liquidity in such pairs as ruble-yuan, ruble- ndian rupee, etc., is very low, and their use to convert large amounts of money assets will entail significant technical and financial costs.

Interestingly, when Iran, following the 2016 nuclear deal, wanted to use its funds that had been frozen in various banks and tried to convert the Omani rials into euros, it failed to do so as a special US license was required to first exchange rials for dollars before it could be possible to exchange dollars for euros.

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