Confronted in 2020 with the Corona induced market crash, central banks worked behind the scenes to keep money flowing. Now, they are joining in on the Russia sanctions battle.
Excluding Russia from the global Swift payment system is viewed as a «nuclear option» by western countries. Unfortunately, such actions also have fallout beyond their intended target, in this case, it is the global financial system.
Now that countries have called for Russia to be excluded from Swift, central banks will be enlisted into the fight, says Credit Suisse strategist Zoltan Pozsar. As a result, major central banks of the West will have to secure additional liquidity to bridge defaults.
Foreign Assets
Poszar already warned of the explosive power of the Russian central bank's estimated $300 billion in foreign assets, as finews.com previously reported. Reuters also quotes from a recent report by him, in which he says central banks need to take measures, as they last did two years ago, to avoid an imminent liquidity crunch.
This comes at a time when central banks like the US Fed actually want to raise interest rates and reduce their balance sheets.
Ruble Collapse?
«Exclusions from Swift will lead to huge overdrafts and missed payment dates like we saw in March 2020,» Poszar warned.
Meanwhile, signs emerged on Monday that Russia's banking system is bracing for more pressure on it. The U.K.-based «Financial Times» (behind paywall) reported long lines outside ATMs in Russia and expects the ruble to collapse.
Russia's Central Bank
On Friday, Russia's central bank issued a statement that all bank payment cards, including those issued by sanctioned banks, will operate in Russia for payments for goods and services, money transfers and transactions in ATMs without limitations.
