The US is considering placing sanctions on the Russian central bank, in a move that would stop Moscow accessing its foreign reserves.
The action by the Biden administration would be the harshest measure imposed on Russia over its invasion of Ukraine, according to people familiar with the internal discussions.
Signs that Washington was preparing to dramatically ratchet up pressure on Russia came as Germany reversed course on its previous resistance to cutting Moscow off from Swift, the global interbank payments system.
Germany said it supported imposing “targeted and functional” restrictions on Russia concerning Swift, its foreign and economy ministers said on Saturday.
“We are urgently working on how to limit the collateral damage of decoupling from Swift in such a way that it affects the right people,” German foreign minister Annalena Baerbock and economy minister Robert Habeck said.
The comments mark a shift from a day earlier, when German leaders said they were against suspending Russia from Swift. However, pressure has been mounting on European states holding out against such a move as bloody images emerge from Ukraine.
The White House and US Federal Reserve declined to comment on the central bank option, which was first reported by Bloomberg. The US has previously only imposed sanctions on the central banks of Iran, Venezuela and North Korea.
One way of the US moving against the Russian central bank would be to place it on the US Treasury’s Specially Designated Nationals list. That would bar US entities from dealing with the bank and could lead to foreign institutions that transact with it facing sanctions.
A senior US banking executive said putting sanctions on the central bank was one of many options that the Biden administration had discussed with leading US financial groups in recent weeks. The executive said it was unclear whether the administration intended to take such a step, but added that US officials wanted to make sure banks were prepared for the possibility.
Josh Lipsky, a former IMF adviser now at the Atlantic Council think-tank, said the US imposing sanctions on the Russian central bank would be an “extraordinarily significant and damaging move to the Russian economy”.
“A G20 central bank has never been sanctioned before. This is not Iran. This is not Venezuela. So to shut off their central bank from the international financial system, or at least the dollar and euro economy, is a massively destabilizing move potentially, ”said Lipsky.
Edward Fishman, a former US official now at the Center for a New American Security, said it would present a “devastating blow” to the Russian economy that would eclipse the significance of a ban on Swift.
“If you added the Russian central bank to the SDN list, it would be the single most impactful sanction that you could apply to Russia, and you could do it with a stroke of the pen,” he said. “It would render a sizeable chunk of their foreign exchange reserves unusable overnight.”
A ban would prohibit US entities from doing any dealings with the central bank. That would mean everyone in the world would be “skittish about moving any assets on behalf of the Russian central bank”, Fishman explained.
In the EU, discussions over the Swift payments system are gathering pace as part of a third package of sanctions, on top of two sets of penalties announced earlier this week.
EU resistance to ejecting Russian banks from Swift has been eroding, with Italy saying it would not stand in the way of such a move. Italian Prime Minister Mario Draghi told Ukrainian President Volodymyr Zelensky in a call on Saturday that Rome would fully support EU work on sanctions against Russia, “including those encompassing Swift”.
Cutting Russian banks out of Swift would make it more difficult for Russians to make cross-border transactions, intensifying pressure on the country’s financial system.
The European Commission and the European Central Bank have been instructed by finance ministers to undertake technical work on the mechanics and ramifications of the move.
Swift, a Belgian enterprise owned by more than 2,000 banks and financial institutions, provides secure messaging services for trillions of dollars’ worth of payments between banks. It has found itself in the spotlight during international crises, most notably over Iran’s nuclear program when in 2012, and again in 2018, it was pushed to shut out Iranian banks targeted by sanctions.
Some analysts believe severing banks’ links to Swift would cause severe operational problems while not being as debilitating as more targeted sanctions, such as those imposed by the US in past days on Russian banks.
But Ukraine has seized on Swift as part of its campaign for tougher action against Russia, leading to intense pressure on major economies including the US and Germany to eject Russia from the system.
One of the key concerns in Europe is how to ensure cutting Russian banks from Swift does not impair countries’ ability to pay for gas imports from the country.
German officials have said the Swift debate dodges a deeper question for western allies: whether they want to continue to buy Russian fuel. About 40 per cent of the gas that Europe imports comes from Russia. German officials argue that unless western governments are prepared to boycott Russian energy, suspending Moscow from Swift could wreak economic havoc.
Some G7 officials fear that removing Russia from Swift would accelerate efforts by Russia and particularly China to create rival payment systems that do not use the US dollar.
Additional reporting by Gary Silverman in New York and Silvia Sciorilli Borrelli in Milan