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How will Russia handle sanctions from SWIFT, Visa and Mastercard?

On 24 February, Russian President Vladimir Putin announced that a ‘special operation’ would be carried out in Ukraine to protect the independent regions of Donetsk and Luhansk, located in eastern Ukraine, where there is Russian support.

The ‘special operation’ Putin claimed to put into action to “demilitarise and de-nazify” the Ukrainian government has quickly escalated into a full-scale invasion of the country itself. 

The Russian economy has crippled as a result of the destruction of Ukraine and the death of innocent Ukrainian civilians.

Political world leaders and organisations placed harsh sanctions and bans on the Russian Federation to ensure Putin can no longer fund the war he started.

Such sanctions include a partial ban from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a global banking cooperative. SWIFT connects more than 11,000 banking institutions and securities from 200 countries and territories around the globe and allows for safe and secure financial transactions.

President of the European Union, Ursula von der Leyen, announced that the sanction will take effect on 12 March 2022 and will expand to other Russian banks based on Russia’s behaviour.

“At the speed of light, the European Union has adopted three waves of heavy sanctions against Russia’s financial system, its high-tech industries and its corrupt elite. This is the largest sanctions package in our Union’s history. Today’s decision to disconnect key Russian banks from the SWIFT network will send yet another very clear signal to Putin and the Kremlin,” said President von der Leyen.

https://twitter.com/vonderleyen/status/1497694812018991112

There are currently seven Russian banks, excluding Russia’s two largest banks: Sberbank and Gazprombank, that cannot access international markets. Banning all Russian banks is too risky for the EU as it depends heavily on Russian energy.

Global credit card networks such as Visa and Mastercard, which operate through SWIFT, are suspended in Russia and cannot be used to make purchases or transactions. Visa stated on 5 March that it is working with “clients and partners” to “cease all Visa transactions” in Russia.

“We are compelled to act following Russia’s unprovoked invasion of Ukraine, and the unacceptable events that we have witnessed […] We regret the impact this will have on our valued colleagues and the clients, partners, merchants and cardholders we serve in Russia. This war and the ongoing threat to peace and stability demand we respond in line with our values,” said Al Kelly, chief executive officer of Visa.

Visa users in Russia will only be able to make domestic transactions within the country until cards expire but cannot make foreign purchases. Image: unsplash.com

Visa and Mastercard users in Russia can still make domestic transactions and purchases until the cards expire. Foreign transactions and cards issued in foreign countries will not work in Russia.

Mastercard has also expressed its concerns with the war and stated that they are no longer continuing operations, neither inside nor outside of the country, as a result of Putin’s actions on Ukraine:

“For more than a week, the world has watched the shocking and devastating events resulting from the Russian invasion of Ukraine. Our colleagues, our customers and our partners have been affected in ways that most of us could not imagine,” a statement from Mastercard said.

“It’s with all of this in mind – and noting the unprecedented nature of the current conflict and the uncertain economic environment – we have decided to suspend our network services in Russia.”

“We don’t take this decision lightly. Mastercard has operated in Russia for more than 25 years. We have nearly 200 colleagues there who make this company so critical to many stakeholders,” Mastercard added.

The Russian economy now has to deal with the lack of consumer goods and services of U.S. origin. PayPal, along with Apple which has also suspended its operations in Russia.

These sanctions and bans placed upon the Russian Federation will undoubtedly have a shockingly negative effect on its economy. Multinational companies are suspending operations and terminating the importation of goods into the country.

In this case, this will only slow down the progress of the Russian economy. Russia is now limited to consumer goods that they have been in connection with for over 30 years.

Microsoft, Apple, McDonald’s, Coca-Cola, Netflix and Zara are all popular brands that will no longer have any ties with Russia, partially isolating the country from the rest of the world.

This is a step towards pushing Putin to end the war he initiated.

Many Russian civilians are fleeing to countries like Finland and Estonia, away from the devastating sanctions that make life harder for ordinary Russian citizens who do not support the conflict between Russia and Ukraine.

Not only will Russia experience difficulty finding markets that are willing to continue operating in the country, but there will also be limits in terms of workforce, considering many Russians are terrified of what the future of Russia will look like after the war.

Russian ruble has lost its value by a record low 30% since the beginning of the invasion, creating mass inflation, especially in Russian households, according to Associated Press.

Graph of Ruble to US Dollars, there has been a dramatic decrease in the value of the Russian ruble since the invasion. Image: www.ex.com

Oleg Deripaska, Russian billionaire and one of Putin’s favourite industrialists, mentioned that the Russian economy is experiencing an economic crash “not unlike 1998”. Instead, to realise how bad the Russian economy will fall, we need to “multiply that number by three”.

“We need peace as soon as possible, as we have already passed the point of no return – and this is the second point I agree with. The entire world will be different, Russia will be different as well,” Mr Deripaska tweeted.

Whether President Putin decides to end the conflict in Ukraine or decides to move forward with this operation, he will continue to be the cause of sanctions against Russia’s economy.

Russia is already turning their head toward China and UnionPay in response to sanctions on SWIFT, Visa and other banking services. Not only will the sanctions help progress towards an end to Putin’s funds on the war but they will also punish the Russian government for its actions against an independent country.

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