Excluding Russian banks from Swift and the Russian central bank from international operations has, up until now, been considered a last resort.
Shutting it out of Swift, the international payment system, creates potentially substantial collateral damage for companies and financial institutions owed money – either now or in longer term financial contracts – by Russian counterparties.
In 2018, America managed to force Swift to ditch Iranian banks but even that was a far smaller economy and was opposed at the time by most European governments.
Germany is particularly sensitive as it has relies on Russia for two thirds of its gas supply. It also feels it has already “taken one for the team” by suspending the certification of the Nord Stream 2 pipeline, built to transport gas from Russia to Germany.
Authorities in US, Europe and the UK appear to have agreed a way to minimise these vulnerabilities by excluding the banks least involved in energy transactions or finding a way of filtering transactions to allow through energy and food payments.
The details of how they will do this have not been disclosed.
Although it would be very disruptive to Russia, there is an alternative system called SPFS – or System for Transfer of Financial Messages – that Russia set up after Crimea in 2014.
China also has a secondary system called the Cross-Border Interbank Payment System or CIPS.
Many have thought that expelling Russia might push it closer to China and play into the hands of a Xi administration keen to undermine the dominance of the global US dollar-based financial architecture. This would accelerate that trend and/or ambition.
Having said that, one banking contact told me that China might be unwilling at this stage to help Russia given its import-export relationship with the rest of the world is enormous – unlike Russia’s.
Perhaps even more damaging to Russia than shutting it out of Swift is a move to isolate Russia’s central bank. Preventing it from using its $630bn international dollar reserves to support the rouble could see its value collapse with dire consequences for the Russian economy.
What seems clear is that the UK government has acknowledged it can no longer be seen to be soft pedalling on its approach to Russian financial interests in the UK.
The government recently turned down an application to build an electricity pipeline between Northern France and the UK on the basis that other alternatives had not been fully explored but sources close to the process told the BBC that the escalating situation in Ukraine had a bearing on the decision given the project was backed by one Ukrainian and one Russian born backer.
HMRC is also being encouraged to make the most of its powers to seize assets of individuals which fail Unexplained Wealth Orders.
Roman Abramovich’s decision to transfer “stewardship” of Chelsea FC to a charitable foundation is more symbolic than legally significant but it shows he understands which way the wind is now blowing in the UK.