Russia’s brutal invasion of Ukraine has sparked revulsion across the globe, as Vladimir Putin’s armies attempt to redraw the map of Europe. In response, governments in North America, Europe and Japan have begun a co-ordinated assault on the Russian economy, critically targeting its most important financial institution, the Russian central bank. Yet even as the immediate impacts are felt by ordinary Russians, this demonstration of economic power is likely to reinforce the relative decline of the dollar-centred West in the emerging global system.
The offensive operation against Russia’s central bank isn’t quite “unprecedented”, as it has been billed. The European Central Bank (ECB), dominant inside the eurozone, used its own powers to withhold support in order to bring to heel the Irish government in 2010 and then, more dramatically, the newly elected Syriza government of Greece in 2015. By threatening to remove emergency liquidity assistance for the country’s failing banking systems, the ECB, as sole supplier of euro reserves, was able to blackmail both governments into imposing austerity on their populations. The ability to attack a country’s banking system is a hugely powerful economic weapon, as the impacts in Russia are making clear, from rapidly rising prices to the anxious queues for bank withdrawals.
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