The Consequences of Freezing Out Russia’s Banks

Russia's armed invasion of Ukraine has already exacted a terrible human cost. Thousands of people are dead and over a million have been displaced. In condemning Russia's actions, other nations across the world have sought to hit the country with a broad array of economic sanctions. One of those sanctions targets several large Russian banks, and it could have repercussions across the globe.

This week on Gadget Lab, we talk with Rachel Rizzo, a senior fellow at the Atlantic Council, about the economic repercussions of kicking major Russian banks out of Swift. Then, WIRED staff writer Aarian Marshall joins us to talk about how the war has affected gig workers in Ukraine.

Read Aarian’s story about gig workers in Ukraine.

Aarian recommends going on a walk to clear your head. Lauren recommends the Maintenance Phase podcast, which tackles the worst aspects of the wellness movement. Mike recommends the podcast Our Struggle, which is all about the series of autobiographical novels by Karl Ove Knausgård.

Rachel Rizzo can be found on Twitter @RachelRizzo. Aarian Marshall is @AarianMarshall. Lauren Goode is @LaurenGoode. Michael Calore is @snackfight. Bling the main hotline at @GadgetLab. The show is produced by Boone Ashworth (@booneashworth). Our theme music is by Solar Keys.

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MC: Lauren.

LG: Mike.

MC: Lauren, a lot of times in this podcast, we talk about topics that you and I both reported on. Like trends in smartphones, processors, concerns about social media, whatever the heck the metaverse is.

LG: Right, right. Although I'm not sure we have fully answered that last one yet.

MC: We have not even come close.

LG: Mm-hmm.

MC: But there's a lot going on in the world right now, with Russia invading Ukraine …

LG: Indeed.

MC: ... and sometimes we need to put a pause on talking about consumer tech and bring in the experts.

LG: That's correct. And we have a lot to unpack today. So let's get to it.

MC: Let's do it. Hi everyone. Welcome to Gadget Lab. I am Michael Calore. I'm a senior editor at WIRED.

LG: And I'm Lauren Goode. I'm a senior writer at WIRED.

MC: As I'm sure you all know, Russia started a war last week, by invading the neighboring country of Ukraine. This is a fast-moving story. New information is coming out every minute. So just to time-stamp this, we're recording this conversation on Thursday, March 3rd.

So in response to Russia's aggression, other nations have ramped up economic sanctions against Russia. One of those sanctions being enforced right now is aimed at Russian banks. Western countries are moving to ban Russia from the financial coordination system known as Swift.

So what is Swift? We know it's a kind of messaging system that banks use to coordinate money transfers around the globe, but to help explain it more we've brought in Rachel Rizzo, a senior fellow with the Atlantic Council, who studies NATO and European security matters. Rachel, thanks for being here.

Rachel Rizzo: Thanks for having me on.

MC: Of course. So let's start with the basics. Can you please tell us what exactly is Swift, and why is kicking Russia out of it such a big deal?

RR: Sure. Swift—or as it's formally known, the Society for Worldwide Interbank Financial Telecommunications—is a cooperative company under Belgian law that's headquartered in Belgium. It's controlled by the central banks of the G-10 countries, the European Central Bank, and the National Bank of Belgium.

Now, as you mentioned, Swift isn't a bank. It doesn't trade funds. What it is, is a messaging system for banks and other financial institutions around the world. It doesn't shuttle any money itself, but it provides instruction messages for just how to give and receive specific funds. Right? So if you've ever received or sent money, you need to provide Swift with instructions. A Swift code. So that banks know where they're sending the money. Without a Swift code in place, the money that banks are trying to send won't get where it's supposed to go.

So it's been around for about 50 years. It was founded back in 1973, and it's really become an integral part of the flow of global trade. When a bank is a member of Swift, their instruction messages are cleared as secure, pretty much immediately. So the transactions happen pretty quickly.

RR: Right now, there's about 11,000 member banks in 200 countries and territories that use it. And in February of 2022, the system sent 82 million messages. So the fact that Russia is now being cut off from this system, it's a really big deal.

Now it's not every Russian bank. It's seven Russian banks, and there are important cutouts, like oil and gas. That's something to keep in mind, but this is going to create some major headaches for Putin and his regime, which is the ultimate goal here.

LG: So when consumers make a financial transaction, are they in a sense using the Swift system? Is their monetary exchange being communicated by the Swift system? Or is this more for exchanges that happen from bank to bank?

RR: It's both. It's bank-to-bank transactions. It's also person-to-person transactions. If you received a wire, or money from a payment, or something like that. If you've ever provided a Swift code for that payment, that is a good example of Swift being used in action. So it's not just the major banks that are using it. It goes all the way down into the financial system, which is why it can be so economically painful to be cut off from the system.

MC: So even if I can't easily send money from one bank account to another. What if I want to use a popular person-to person-payment app, something like Apple Pay, Google Pay, Venmo, Square Cash, PayPal. Do those apps still work in Russia?

RR: Well, depending on if those companies have shut down their operations in Russia, the answer's either yes or no. If yes, then no, you can't use them. I'm pretty sure that earlier this week, Apple shut down its activities in Russia. Which means Apple Pay, you're not going to be able to use that to get funds out of your bank.

I think it's important, though, to note, there are workarounds to this. Major banks that are cut off from the Swift system, they can use other systems, like the SPFS system, which was established by the Russian central bank after the 2014 invasion of Crimea, or the CIPS Network. This was created by the People's Bank of China.

And  I think it's worth noting the international payments to Gazprom, for Russian oil and gas, aren't made via Swift. So there's definitely workarounds here, but they're not as secure, they're slower, and they cost more. There's also not as much of a reach. Right? The Chinese system, for example, is a lot smaller. There's only about 1,300 financial institutions participating, and most of them indirectly.

LG: And you are correct, Rachel. Earlier this week, we reported that Apple had paused selling its products through various retail channels in Russia and had shut down services or was limiting services such as Apple Pay.

So as far as sanctions against Russia go, I'm wondering what level or scale you think this is on. Banning Russia from Swift. Does this have more impact than say tech companies pulling their products and services from Russia, or a company like Luke Oil speaking out against the invasion of Ukraine?

RR: I think it does have bigger implications. And I think to really assess what this means, for the Russian financial system, you do have to look at the whole breadth of sanctions that are being implemented.

The removal of these major Russian banks from the Swift system is a drastic option. But when you listen to Western leaders talk about the effects of the ongoing sanctions regime, you'll notice that the really serious move has been the sanctioning of Russia's central bank.

And the reason that I say this is because the bank of Russia has roughly $640 billion in foreign exchange. It's built up the fourth-largest foreign currency reserves in the world. But a big chunk of that money is not in Russian vaults or financial institutions. Right? It's held overseas, in banks in, say, Berlin or Tokyo or New York or London. And these reserves are financed in large part through the money Russia earns by selling oil and gas to Europe and other customers.

So, when Russia is experiencing economic collapse because of sanctions, if the central bank wasn't involved in these sanctions, they could try to prop up the value of the ruble by using the reserves to buy up rubles that people are selling. But it can do that only as long as it has access to foreign reserves. 

If it doesn't have access to them. Putin, the central bank will lose the ability to offset the impact of Western sanctions. And that's what we're seeing happening now. So the mix of all these together is extremely painful for the Russian economy.

LG: So what has this done to the ruble?

RR: It's basically tainted, in a matter of a week. The central bank doubled its interest rate, from 9 percent to 20 percent to try to avoid some of the economic catastrophe that was happening to the country, but it's basically worthless against the dollar right now. I was just watching a news report a few minutes ago, and someone said, what's the difference between the ruble and a dollar? It's a dollar, because the ruble is basically worth nothing.

MC: Wow.

RR: So the sanctions are working. This is going to be more of a medium to long-term strategy though, right? This is not meant ... Sanctions are not meant to deter Putin at this point in time. I think it's become very clear that he has a goal in mind, and he is going to do his utmost to achieve it. The goal here is that these are punitive measures, that hopefully create enough pain for the Russian economy that he changes course. Now, of course, the sad thing here is that the people who ultimately feel this are Russian citizens. So there's always a downside to this, and that's what it is.

LG: Right. There's always collateral damage with moves like these.

RR: Absolutely. And as I mentioned before, you see Russians lining up at the ATM, trying to pull their money out, worrying that it's not going to be worth anything. I mean, a currency that's in free fall like the ruble, it just can absolutely cripple an economy.

It's going to make imports more expensive, which is going to hurt consumers and manufacturers. Production could slow or grind to a halt, because companies can't afford raw materials. So it's pretty clear at this point, why Western officials are trying to crush the ruble as another way to put economic pressure on Russia.

I will say too, though, at the same time, we are already seeing effects on commodity prices around the world. We're seeing higher gas prices in Europe, not because Putin has slowed supplies but because there is a fear that he might.

We're also seeing, for example, prices of wheat start to go up, because Ukraine is one of the bread baskets of Europe. It, that's affecting those exports. So there are, there's two sides to sanctions, and I think we are going to see both of those eventually.

MC: Proponents of cryptocurrency have said that this could actually be a big moment for crypto.

LG: Of course they have.

MC: Yes. They're often saying this. But because cryptocurrency is decentralized, things like international economic sanctions or Swift bans wouldn't affect its transactions. Is that true? And has crypto played a role at all in this last week?

RR: So, the thing about crypto is that it's extremely volatile. Right? If you follow the prices of Bitcoin, Cardano, Avalanche. They go up and down, in extreme amounts daily. And so if you talk to folks that are experts in monetary policy, they will say that they don't see a scenario where cryptocurrency is seen as a viable alternative to the dollar or the euro, or perhaps the ruble.

So I don't think that we're going to get to a point where we're going to be seeing Russian investors crawl to cryptocurrency, to boost up their losses. But again, cryptocurrency is largely unregulated. So I think this is one of those situations where we're sort of building the plane as we fly it.

MC: All right. Our guest has been Rachel Rizzo. A senior fellow at the Atlantic Council. Rachel, thank you for we're walking through all of this with us.

RR: Thanks for having me. Appreciate it.

MC: We're going to take a quick break and then come back with Aarian Marshall from WIRED to talk about gig workers in Ukraine.

[Break]

MC: Russia's invasion of Ukraine is having far-reaching consequences across the world, but the most immediate and dire effects are of course happening right there in Ukraine. One group that it's affecting is gig workers. People who do part-time or freelance work for some of the largest tech companies in the world. So we've brought in WIRED staff writer Aarian Marshall, who's been talking to gig workers in Ukraine. Aarian, welcome back to the show.

AM: Thanks for having me.

MC: So please tell us, how big a deal is digital gig work in Ukraine?

AM: It is a pretty big deal. This is not something I really knew before this weekend. That's really on me, but there's a ton of freelancers, contract workers in Ukraine, doing gig-based work. They are software engineers, they're graphic designers, they're virtual assistants. They work in IT. There's a ton of tech talent there. And companies in Europe and the US have worked with them for many, many years now, and it seems like that's a trend that's only accelerated during the pandemic.

LG: And it seems like there are some middlemen, who sit between these folks who are working gig jobs and some of the big, tech platforms. So describe this kind of relationship for us.

AM: Yeah. These are, online platforms that are a little bit like Uber, a little bit like Lyft or DoorDash, but they're for web-based work. In English, the English-language people, for folks who speak English, there are platforms like Upwork and Fiverr and Freelancer.com, which is based out of Australia.

There's also a ton of Russian-language sites, and then, also, ones that are based out of Ukraine as well. But the big thing, the kind of business model here, is that these companies charge both people that are hiring freelancers and the freelancers themselves, commissions to find each other on their platforms. So you pay to use the service.

LG: So if you're a person who is looking for gig work, a freelancer, and you're on something like Upwork or Fiverr, you are paying the service to be connected with potential clients. Likewise those clients—let's say it's a company like Facebook or Meta—they would also pay that middleman to connect them with gig workers.

AM: Exactly. And generally the freelancers are paying higher commissions than the clients. So they can pay up to 20 percent of their work fee to those platforms. And usually for the clients, it's kind of around 6, 7, maybe even 3 or 4 percent.

MC: So gig work is already pretty precarious. You don't have much security or protection, and you're only able to work if you have a stable internet connection and access to technology. I imagine that the Russian invasion has upended those things for people.

AM: Definitely. There are some people who work for American or European or Israeli countries who are employees in Ukraine. And a lot of those people have been working with their companies since, even the end of January to come up with evacuation plans and contingencies and to help get them out of the country.

But freelancers generally don't have those sorts of support from the people that they have contracts with. So just like everyone else in Ukraine, their lives have been very chaotic,in the past week or so.

I've spoken to a lot of freelancers who have actually maintained an internet connection, have maintained electricity, and they're actually kind of trying to work through it. For some, they tell me it's kind of a way to maintain normalcy, just kind of a way to pass the time.

It's a really terrifying time. It's almost a distraction, but also they tell me they have to keep working if they're going to get paid. They don't get days off, because they're contractors, they don't get sick pay or leave. So if they want to make money, if they want to pay rent this month, they're going to have to keep working.

LG: And some of these issues are things that we've talked about for gig workers here in the United States, and particularly here in California. There's been this ongoing conversation about what big tech companies or platforms owe their contractors or gig workers.

And that's often in the context of benefits, such as health care or retirement fund contributions. In the case of war though, and other serious geopolitical conflicts. What do these platforms owe these gig workers in other countries? I mean, what should they be doing, in addition to issuing their token statements of support?

AM: Yeah. That's a great question and a big one that I … even freelancers I've talked to have been divided about right now. Some are asking that the platforms get rid of commissions for freelancers who are based in Ukraine right now. Just kind of give them the whole fee that they're owed.

Others are asking for a kind of quicker turnaround on pay right now, depending on how often you use the platform. There's generally a delay between when you finish a project and when you get paid for that project.

And then some are asking for these platforms to kick off both Russian freelancers and Russian clients from their platform. They're saying, "You know what, ultimately, you're ... You say that you are a neutral platform, but by allowing Russian people to do business on your platform right now, you're not neutral, you're actually taking a stand, and that stand is against Ukraine."

So it kind of really depends on the person you're talking to, but I think it goes along with this broader theme that we've seen in all parts of the tech world over the past several years, which is, what are the responsibilities of tech platforms? How should they be responding to any sort of major event, but especially a war.

MC: Yeah. And if a tech platform decides to allow Russian businesses and Russian entities to keep operating on the app, I suppose that makes payment more difficult. Right? With the economic sanctions, it's more difficult to do payments with banks and companies in Russia.

So have you heard anything from your sources in Ukraine about payment slowing down, making it more difficult for them to actually get paid for the work that they're doing?

AM: I haven't heard of anything about having difficulties getting paid in Ukraine. The situation in some specific regions, these contested regions that were the excuse for Putin to go into Ukraine, last week—I believe those are subject to certain sanctions, and it's especially hard for those freelancers to get work right now, but that doesn't apply to all of Ukraine. Just some very specific parts of it. But you do ask a question that isn't resolved yet. Which is, how are these companies going to respond to broader sanctions by the US, by the EU, by other countries. It's going to get really complicated out there.

LG: What about people in Russia? I mean, do we have a sense of whether there is a similar economy there for gig workers who do work for these sites, Upwork, Fiverr, others. And if so, what is their status now with more and more communications being cut off in Russia?

AM: No. I'm not exactly sure how those freelancers are dealing with their work right now. I do know that, much like in Ukraine, there's also a big number of people who do freelance web-based work in Russia, but I'm not sure how they're faring.

I think this conflict really highlighted for a lot of people, particularly in the US, particularly in Europe, how interconnected the whole world is now in terms of the kind of day-to-day work we do, especially in the tech sector. So I imagine they're feeling a lot of repercussions, but not quite sure what those are for those people yet.

MC: Aarian. Thank you for bringing us up to speed on everything happening with gig workers in Ukraine. We're going to take a break right now, and when we come back, we'll do our recommendations.

[Break]

MC: Aarian Marshall, thanks for sticking around for this last part of the show. Please tell us what is your recommendation for our listeners?

AM: OK. My recommendation is a simple one. And one that I hope, I myself will take later, because I haven't been doing this lately and it's mistake. I recommend taking walks. It is March. It's probably starting to get nice where you are, hopefully. I have been ... What's happening in the world has left me stressed and distressed, and there's only so much I can do about it, and sometimes you just got to go outside and take a deep breath of air. I'm hoping to do that later today.

LG: That is such a great recommendation.

MC: Yeah. It's very nice. Do you listen to podcasts or music, or do you go all natural.

AM: I think today is going to be an all-natural sort of situation. I think I need to unplug my brain from all the things and just look at the sky.

LG: Yeah. We call that nat sound.

MC: Nat sound?

LG: Well. Yeah. Like in production, if you create a layer in the background, that's nat sound. It's natural sounds, just in the background.

MC: It's like room tone, but for the outdoors.

LG: Exactly.

MC: Nice.

LG: Yeah.

MC: Lauren, what is your recommendation?

LG: Well, if Aarian was going to listen to a podcast on her walk today. I would recommend the Maintenance Phase podcast, which is hosted by Aubrey Gordon and Michael Hobbes. It publishes every other Tuesday. It's everywhere you get your podcast.

And this is a fantastic show that examines the wellness-industrial complex in a very fun, but also a deeply, deeply curious way. The hosts really go down some rabbit holes, and they pick apart fad diets. They call out people who are either scammy, in the wellness industry, or they're reinforcing the status quo around weight and weight loss.

And if you're going to get into this, the three episodes I might recommend to start with, that would be "The Great Protein Fiasco," which is from last summer. The "Wellness to QAnon Pipeline." And just the other day, I'm a little behind the curve on this, but I just listened to the episode titled "Illness Influencer Belle Gibson," which is just a journey of an episode. Lots of twists and turns in that one.

MC: How so, what's journey-istic about it?

LG: This is a young woman who was really just given these incredible media platforms as someone who had cancer and had found her way back to health through her diet and other sort of natural or holistic approaches.

And she was a Cosmo, fun, fab, fearless female. I'm probably using too many adjectives there. But also at one point, Apple gave her a platform as part of the Apple Watch launch many years ago. And I don't want to spoil too much. But this woman was not all who she's seem to be.

MC: OK.

LG: And just when you think the episode is ending, there's another surprise. It's just really, it's really worth a listen.

MC: Excellent.

LG: Yeah. Just a lot to unpack there. So I recommend checking that one out.

MC: Maintenance Phase.

LG: Maintenance Phase. Hosted by Aubrey Gordon and Michael Hobbes.

MC: Nice.

LG: Mike, what is your recommendation this week?

MC: I'm going to recommend a literary podcast. It's a show called Our Struggle, and it is a podcast that is a long series of interviews with a different guest every episode, and the topic is always exactly the same thing, which is the six volume autobiographical novel My Struggle by the Norwegian author Karl Ove Knausgård.

LG: That's a mouthful.

MC: Yes. So this is an entire podcast series. A whole show dedicated just to this one piece of literary, autobiographical fiction.

LG: So it's a podcast, called Our Struggle, which is about a book called My Struggle.

MC: Yep.

LG: Which also, happens to be the title of another book.

MC: Yes. By Adolf Hitler.

LG: Right.

MC: Mein Kampf.

LG: Which you're not recommending.

MC: Right, I'm not recommending that. I ... So this is the kind of thing where if you were part of the Karl Ove Knausgard sensation, phenomenon, I don't know what you want to call it. But he became a literary sensation within the last 10 years. And you have either never heard of him, or you've heard of him and you've dabbled and you don't like it, or you've heard of him and you've dabbled and you've gone straight down the K-hole.

I went straight down the K-hole about two years ago. I read the whole book. It's 3,600 pages. Six volumes. It was definitely a struggle to get through it. But now that I'm done with it, I've been obsessed with this podcast.

Because the podcast, the two hosts, Lauren Teixeira and Drew Ohringer. They famously have not read the books. And they have guests on who are literary guests, people who are Pulitzer Prize winners, and people who translate poetry and people who write for London Review of Books.

They have high-profile literature, smart people on the show. And often they have also not read the books. So they just talk about things that are tangentially related to literature, and particularly to the Norwegian man, Karl Ove Knausgård, who wrote My Struggle.

MC: It's very weird. It's very meta. I love it. I can't get enough of it. I just keep listening to episode after episode. So if you have at all been K-pilled recently, or in your life, and you are familiar with that word, then I can highly recommend the Our Struggle podcast.

LG: So the fact that the hosts have not read this book, this tome, means that they're just asking the most basic questions, which provides, I imagine, some element of exposition.

MC: Well, I think they've read most of book one.

LG: OK.

MC: And maybe some other things. And if the ... If you've read book one, you kind of get it. You kind of get where he is coming from, you understand the broader themes of the Knausgård oeuvre. So they kind of just dive into that. Yeah.

LG: I was just going to say I can't wait to check it out. But I'm probably going to.

MC: Yeah.

LG: But I think some of our audience will.

MC: Yes.

LG: I've heard you talk about the book before.

MC: Yes.

LG: Quite a bit. And I'm intrigued.

MC: I recommend the episode “Hot in Translation.”

LG: Right.

MC: Yeah.

LG: Good one.

MC: That's a good one to dive in on.

LG: Aarian. Have we convinced you yet to forgo nat sound, in favor of podcast, during your walk today or this weekend?

AM: Those both sound very intriguing, but I think my brain needs to be alone today. Maybe later this week.

MC: All right.

LG: Fair enough.

MC: Well, it has been a very busy couple of weeks for us in the news business, and it's a very serious topic. So Aarian, thank you for coming on the show and helping us make sense of it.

AM: Thanks for having me.

MC: And thank you all for listening. If you have feedback, you can find all of us on Twitter. Just check the show notes. This show is produced by Boone Ashworth. We will be back next week, and until then, please stay safe out there.

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