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How Europe Learned to Use Central Banks as a Weapon

By
James Meadway

The Western sanctions against Russia are widely being called an unprecedented move. But the major mechanism they use has been road-tested throughout a decade of eurozone crisis — and threatens economic devastation far beyond Russian elites alone.

Central Bank of Russia raises key rate to 20%

A woman walks past the offices of the Russian Central Bank on February 28, 2022. (Mikhail Tereshchenko / TASS via Getty Images)

Scenes from Moscow and other Russian cities over the last twenty-four hours suggests the initial stages of a bank run, whilst the ruble fell almost 40 percent in early trading today as East Asian markets opened. This was the intended result of the economic sanctions announced by European powers, Canada, and the United States, subsequently joined by Japan, over the weekend. The sanctions are unusually severe measures, threatening potential economic devastation, but the major mechanism they use has been road-tested over the last decade of economic crisis and disorder.

As with the US/UK invasion of Iraq, there is no credible justification made for what Vladimir Putin is inflicting on Ukraine and its people, and the case offered by the Putin government is also one transparently based on lies. But the invasion and its consequences dramatically expose the shape of the world system after more than a decade of war, disorder, and pandemic since the 2008 financial crisis.

Not Oligarchs, Not SWIFT

First, talk of financial sanctions has previously tended to focus on the flows of Putin government–connected and, often, criminal financing that make their way through Western banking systems — notably including London. Restrictions on the ability of this or that oligarch to transact as they wish, whilst important, are closer to a severe nuisance rather than applying critical pressure. Likewise, the ban on “golden passports” for oligarchs is long overdue, but hardly a knockout blow.

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