Ukraine issue Financial markets are remarkably quiet

It has been decided to exclude Russia's major banks from SWIFT.

(Long ago, I worked in foreign securities administration and am familiar with SWIFT. However, I do not know who decides on bank exclusions or how they are decided.)

Russia will no longer be able to conduct its usual economic activities, including imports and exports.

However, trade will not come to a complete halt.

Not all Russian banks have been excluded.

Additionally, payments related to energy and food might be exempt (though I do not know how they would be distinguished).

Even if all are excluded, transfers between Mitsubishi UFJ Bank Russia and Mitsubishi UFJ Bank Japan will not require SWIFT. Likewise, transfers between Societe Generale Russia and Societe Generale France will not require SWIFT.

Furthermore, even if the yen and euro are excluded from use, there is still yuan. China also has a payment system that can replace SWIFT (CIPS), which could potentially connect with Russia's SPFS system.

If mishandled, the global circulation of the yuan could actually increase, which would please China greatly.

However, given the current atmosphere, China may not tolerate it. China does not want to be dragged into this.

Nevertheless, behind Germany's decision to exclude Russia's major banks from SWIFT could be that they see the impact being mitigated to a significant extent. If so, there is no need for financial markets to panic.

If Russia is excluded from SWIFT, entities relying on long-term financing from Russia would immediately face difficulties. However, central banks around the world, including the Federal Reserve, will implement liquidity support measures to alleviate funding shortages.

Along with this, the pace of quantitative easing normalization and rate hikes adopted by various countries is likely to change.

For Russia, a greater blow would be if central banks freeze Russia's foreign exchange reserves.

Most foreign exchange reserves are deposited with central banks around the world. If these are frozen, Russia's international finance would lose freedom. While there is gold, it is only about 20% of total foreign exchange reserves and reportedly located in London. Moreover, gold cannot be used for settlements. How would such assets be moved instantly?

It is clear that financial and commodity markets have not fully absorbed all the movements at play.

Risk does not seem to be fully recognized, so risk-off movements are also limited.

The reason risk is not fully recognized is that the world is united in condemning Russia unilaterally (Russia's isolation).

It may be game over. The only remaining risk is Russia using nuclear weapons, but even then, I think protests would occur at sea where no one would be harmed.

However, since almost everything I had anticipated has been betrayed so far, I hope you will not push Russia further.