When applying sanctions to Russia’s central bank this week, the Bank for International Settlements (BIS) made a radical departure from the neutral stance it adopted during the second world war.
The Basel-based BIS is owned by 63 central banks, representing countries that account for about 95 percent of the world’s economic output.
The member banks have voting rights at the BIS and the right to participate in general meetings.
As well as acting as a forum for international monetary and financial cooperation, the BIS offers banking and asset management services to individual central banks.
When necessary, the BIS may contribute its own financial resources in international support operations.
However, on Thursday a spokeswoman for the BIS told new agency AFP that it would cut off Russia while the conflict continues.
“The BIS is following international sanctions against the central bank of Russia, as applicable, and will not be an avenue for sanctions to be circumvented,” she told AFP.
“The access of the central bank of Russia to all BIS services, meetings and other BIS activities has been suspended,” she added.
Escalating sanctions
The move to isolate Russia comes as part of an escalating series of sanctions, led by the US and the EU.
On 28 February, G7 countries said they would freeze all the assets of the Russian central bank held in their countries. The freeze covered about $500bn of the country’s $640bn foreign reserves.
The remaining $140bn, held in gold, is assumed by market observers to be held in Russia and is therefore out of the reach of sanctions.
On Friday, G7 nations said they would end normal trade relations with Russia, revoking Russia’s “most-favoured nation” status, which allows it to trade goods on preferential terms with many western countries under rules set by the World Trade Organization.
Earlier this week, the US banned imports of Russian oil and other fossil fuels, a move that drove global commodity prices, including energy, metals and grains, to new highs.
The UK said it would follow suit, but stopped short of imposing a full embargo on gas imports. Other European nations, which depend heavily on Russian energy imports, have been reluctant to take similar steps.
On March 2 SWIFT, the global messaging system for cross-border payments, said it was suspending several Russian banks from its system. However, the suspension did not cover Russia’s biggest lender, Sberbank, nor Gazprombank, which is partially owned by Russian gas giant Gazprom.
Germany’s chancellor, Olaf Scholtz, said earlier this week that he opposes cutting off supplies from Russia, calling deliveries of oil and gas of “essential importance” to the European economy, adding that continuing energy imports is a “conscious decision”.
BIS neutrality during WW2
By suspending Russia’s membership this week, the BIS is departing from the position of neutrality it adopted during the second world war, when it continued to offer banking services to central banks on both sides of the conflict.
“The Bank’s precarious position—having on its Board central bank representatives of countries that were at war with one another as well as of neutral countries, and being cut off from direct communications with many of its members—gave rise to a number of difficult decisions,” the BIS says on its website.
“The most controversial of these dated from before the war, when, in March 1939, the BIS decided to honour an order received from the Czechoslovak National Bank to transfer part of its gold reserves held in a BIS account at the Bank of England in London to a German Reichsbank account. The transfer order had been issued days after German troops had occupied Prague—as it later transpired, under duress,” the BIS went on.
Investigations after the war revealed that Germany’s Reichsbank had used large quantities of gold stolen from central banks in the occupied territories to make wartime payments to a number of institutions, including the Swiss National Bank and the BIS.
China, India and gulf states
The escalating sanctions against Russia from the US, EU, Switzerland and Japan are throwing a spotlight on the actions of other major economies.
While China has not joined the sanctions campaign, on Thursday the Russian aviation authority said that the country had refused to supply it with airport parts.
Earlier this week, Gina Raimondo, the US commerce secretary, warned of “devastating action” against Chinese companies that breach US sanctions on Russia.
India has not taken a public stance on sanctions but it has abstained from recent votes held at the UN Security Council and UN General Assembly related to Russia’s war in Ukraine.
On Tuesday, the Wall Street Journal reported that Saudi Crown Prince Mohammed bin Salman had rejected a request from the US to speak with President Biden about the oil price spike brought about by Russia’s invasion of Ukraine.
In February, a week before Russia invaded Ukraine, the Saudis declined a request from the US to increase production, as it could upset Russia, CNN reported. Saudi Arabia and Russia are members of the OPEC+ oil-producing alliance.
The United Arab Emirates (UAE) has sought to maintain friendly relations with Russia despite backing a United Nations general assembly motion condemning the Ukraine invasion. It earlier abstained on a similar UN Security Council vote.
Yesterday, Reuters reported that wealthy Russians are trying to use cryptocurrency to get money out of their country, seeking to buy property in Dubai.
On March 5 the Financial Action Task Force (FATF) said it was placing UAE on a grey list for “strategic deficiencies” in countering money laundering in the country.
The FATF, with US at its head, is a 200-country initiative aimed at enforcing know-your-customer (KYC), anti-money-laundering (AML) and countering the financing of terrorism (CFT) standards.
The FATF says its rules “ensure a co-ordinated global response to prevent organised crime, corruption and terrorism”.
Spotlight on Russia’s gold
On March 8 four US senators introduced a bill to try to prevent Russia from using its US$130bn in gold reserves. The bill bar would bar any US citizen or entity from selling or trading gold from Russia’s central bank holdings, or from selling gold physically or electronically in Russia.
On March 7 London’s Bullion Market Association, which sets the standards for the wholesale trading of gold in London and elsewhere, said it was suspending six Russian refiners with immediate effect.
However, while Russia’s access to the London and New York bullion trading markets has effectively been severed, the country can still trade its gold with willing counterparties on a bilateral basis.
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