According to a Credit Suisse strategist, the banning of many Russian banks from the SWIFT international payment system may force central banks to increase liquidity to compensate for missed payments.
On Saturday, Western countries unveiled a slew of measures aimed at punishing Russia for such intrusion of Ukraine, including the exclusion of several banks from the SWIFT international payments system.
Markets Are Prepared To Face The Consequences
Markets prepared for additional instability this weekend as major financial institutions and banks worked to understand the bunch of new measures and their consequences, while markets prepared for more volatility as the restrictions threaten to disrupt global trade and harm both Western and Russian interests.
In a report, Credit Suisse’s Zoltan Pozsar predicted that “limitations from SWIFT would contribute to missed payments and big overdrafts comparable to the unpaid bills and huge overdrafts they have seen in March 2020.”
As part of emergency legislation to halt the financial and economic impact of the coronavirus pandemic, the US Federal Reserve boosted cooperation with other central bankers in March 2020 to alleviate a global dollar-funding shortage.
The infection interrupted the movement of products and services, resulting in delayed payments, and the conflict has resulted in exclusions from SWIFT, resulting in missed payments once more, Pozsar added.
To combat this inflation, the Federal Reserve has revealed intentions to shrink its accounting records this year, after it nearly doubled to about $9 trillion during the crisis as it bought assets to keep longer-term rates of interest low.
However, according to Pozsar, the Fed’s financial statement may rise again before shrinking due to so-called quantitative contraction, which is a reverse of the Fed’s bond-buying strategy.
The impact of banks being excluded from SWIFT is real, as is the requirement for central banks to resume daily US dollar money-providing activities, he said.