AILSA CHANG, HOST:
President Biden has sanctioned the Russian financial system, but one key piece of banking infrastructure remains in place - Russia's access to the SWIFT bank messaging system. Darian Woods and Stacey Vanek Smith from our daily economics podcast, The Indicator From Planet Money, break it down.
DARIAN WOODS, BYLINE: To understand economic sanctions against Russia, we spoke to Alexandra Vacroux last month. Vacroux runs the Davis Center for Russian and Eurasian Studies at Harvard.
ALEXANDRA VACROUX: As far as academics are concerned, bad news is good for business, but this is not really the kind of news we want to be following.
STACEY VANEK SMITH, BYLINE: There's a long history of the U.S. and its allies putting sanctions on Russia, and in the last decade, the U.S. has focused sanctions on very narrow areas like oil and gas drilling. American companies were banned from lending to Russian companies on a blacklist, and the sanctions have also focused on specific elites in Russia.
VACROUX: The idea originally was that, if you sanctioned those people and made it difficult for them to travel or buy real estate in Miami or send their kids to school, that they would realize that Putin is not such a great thing and they won't support him anymore. But that turned out not to be true.
WOODS: Right. We haven't seen the response that the West wanted.
VACROUX: Exactly. What's in play right now is more extreme sanctions and the use of the so-called nuclear option, which would be cutting Russia off of the SWIFT messaging system.
VANEK SMITH: The SWIFT messaging system - this is the very fabric of the global financial system. It's the way that most banks talk to each other for money transfers.
WOODS: SWIFT was set up in Belgium in the 1970s, and it carries messages that are run from three data centers in the U.S., the Netherlands and Switzerland.
VACROUX: SWIFT is like a special social media platform for banks to talk to each other.
WOODS: Like a WhatsApp for money.
VACROUX: Exactly. Right. It doesn't move the money, but it moves the information about the money.
WOODS: Has any country being cut off from SWIFT?
VACROUX: Well, Iran.
WOODS: Iran. And what happened to their economy?
VACROUX: It was not great. They lost half of their oil export revenues and 30% of their foreign trade.
WOODS: Wow. So it decimated the economy.
VACROUX: Yeah. That's why it's the nuclear option.
WOODS: On Thursday, after announcing a second round of sanctions that hit Russia's banks, President Biden was asked a question by The Wall Street Journal.
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TARINI PARTI: Mr. President, you didn't mention SWIFT in your sanctions that you announced. Is there a reason why the U.S. isn't doing that?
PRESIDENT JOE BIDEN: The sanctions...
VANEK SMITH: One reason President Biden gave was that he thinks this round of sanctions was already severe. These sanctions effectively stop most of Russia's banks from accessing the U.S. dollar, which Russia uses for most of its international trade.
That said, Thursday's announcement has significant loopholes, like oil and gas, that will be able to get around the sanctions. But Biden did not rule out cutting Russia off from SWIFT in the future.
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BIDEN: It is always an option, but right now that's not the position that the rest of Europe wishes to take.
WOODS: Some European leaders, though, are in favor, like the U.K. and France. But here's one of the big arguments against going down that road.
VACROUX: Once you impose this, there's nowhere else left to go in terms of sanctions. The problems with sanctions is that they're very rarely lifted. So OK, you know, we don't think we have that much leverage on Putin now. Like, once you do this, basically you have no leverage.
I think that the situation in Ukraine is - it's an extreme gamble on Russia's part to try and force a return to a world order that they felt more comfortable with. And they don't know if it's going to work or not, but I think they still think it's worth the gamble.
WOODS: Darian Woods.
VANEK SMITH: Stacey Vanek Smith, NPR News.
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