SWIFT sign
Photo by James Arthur Gekiere/BELGA MAG/AFP via Getty Images

SWIFT’s endurance provides a lesson for tech

Protocol Policy

Hello, and welcome to Protocol Policy! Today, we’re revisiting the SWIFT sanctions everyone was talking about a few weeks ago to figure out what actually happened. Over in D.C., Janet Yellen called for a “tech-neutral” approach to regulating crypto. And Biden told Amazon to watch out as warehouse unionization efforts have entered the national spotlight.

SWIFT’s lesson for tech

Banning Russia from SWIFT was supposed to be the “nuclear option” of sanctions — at least if you took numerous pundits at their word. I wrote in February that the U.S. would hesitate to hit Russia with a SWIFT ban due to fears of de-dollarization and a cascading economic shock. And yet, weeks after the U.S. and its EU allies executed a partial SWIFT ban, the Russian ruble stands as strong as it did pre-invasion. In fact, the ruble nearly doubled its value relative to U.S. dollars over the course of the preceding month.

The SWIFT sanctions clearly haven’t been as effective as many expected. To understand why, it’s important to take into account the incomplete nature of the SWIFT ban and Russia’s strategic response.

  • The SWIFT ban wasn’t comprehensive and left important carve-outs for Russia’s energy sector. The U.S.-EU coalition agreed to ban seven Russian banks from SWIFT. The EU members weren’t able to agree on banning Sberbank and Gazprombank, even though the U.S. had already sanctioned both institutions. The EU resistance likely has to do with Germany’s continued reliance on Russian gas imports; more broadly, 40% of gas used in Europe comes from Russia. Gazprombank and Sberbank serve as critical banking partners for Russia’s energy sector, and Sberbank holds roughly double the assets of any other bank in Russia.
  • Russia also imposed currency exchange requirements that bolstered the value of the ruble. Beginning at the end of February, Russia required domestic exporters to convert 80% of their exchange currencies into rubles, thus increasing demand for the currency.
  • And Russia’s central bank — still contending with frozen foreign currency reserves — has banned citizens from exchanging rubles for dollars. The Central Bank also banned the sale of foreign currencies and capped U.S. dollar withdrawals in foreign-currency accounts to $10,000 per person. These measures have helped limit the possibility of a bank run, seeing as many Russians would want to shift their rubles to more stable assets.

Some experts say that SWIFT was never that big of a deal in the first place.

  • “The SWIFT thing is really blown out of proportion,” Chris Miller, an assistant professor at Tufts University’s Fletcher School of Law and Diplomacy, told Protocol. “What really mattered was the U.S.- and European-blocking sanctions on the banks that are targeted, which make it illegal for Americans and Europeans to transact with them,” he explained.
  • And while the ruble has stabilized, Miller suggested GDP might be a better way to measure the impact of the sanctions. He cited estimates that the Russian economy will contract by 10% to 15% this year. The financial measures enacted by Russia in response to sanctions will have “a negative impact on investment in Russia for the foreseeable future,” according to Miller.
  • “These are [sanctions] designed not to sanction,” Columbia University historian Adam Tooze wrote in late February. “So long as your energy-related transactions are channelled through non-sanctioned non-US financial institutions, for instance a European bank, you are in the clear.”

This sanctions package is hurting ordinary Russians while allowing the energy sector to have its best year ever. Russia’s energy sector is on track to bring in $321 billion from energy exports in 2022, which represents an increase of over 33% from last year, per Bloomberg. Goldman Sachs predicts this energy surplus could allow Russia to ease the capital controls put in place to stabilize the ruble. Meanwhile, ordinary Russians have seen their standard of living plunge since the start of the conflict.

The limited impact of the SWIFT ban gives the tech sector a valuable lesson on inertia. The ban on SWIFT prompted speculation — including my own — that fintech companies would have an opportunity to fill in the gap with blockchain-based alternatives. While the door hasn’t closed for those companies, the ban clearly didn’t incite a dramatic disruption to the international flow of interbank payments. The saga shows how easy it is to underestimate inertia: It applies to Germany maintaining its energy imports, non-sanctioned banks remaining on SWIFT and international alliances proving resilient through the war. Perhaps because the tech sector is so focused on “disruption,” it’s easy to lose sight of the fact that most things change slowly and only after considerable resistance.

— Hirsh Chitkara (email | twitter)

In Washington

Janet Yellen said crypto regulation should focus squarely on the risks it poses, not the nature of the technology. In her first major comments about the topic, the treasury secretary called for a “tech-neutral” approach.

Elon Musk finally got his White House meeting with Biden administration officials about EVs and charging. Musk had been characteristically salty when he felt that he’d been left out of the conversation on the topic.

The House Jan. 6 committee has been seeking social media experts to weigh in on the attempted coup by supporters of President Trump, according to the Washington Post. The panel has already subpoenaed information from the companies, but is now looking for expertise on how the attack unfolded on social media and is hoping to hire an analyst to focus on the issue.

A batch of tech groups, many of which represent platform companies, is backing Gigi Sohn for the remaining empty FCC seat. The Consumer Technology Association (which puts on CES), the Democrat-allied Chamber of Progress and the Computer & Communications Industry Association all signed a letter urging confirmation of Sohn. Since President Biden nominated Sohn, the longtime net-neutrality advocate has faced a difficult road amid seemingly united Republican opposition.

Meanwhile, Senate Majority Leader Chuck Schumer is trying to tee up a vote on Alvaro Bedoya for a seat on the FTC, though the vote still wouldn’t even happen for about two weeks. Bedoya, a longtime privacy advocate, has been facing some of the same headwinds as Sohn.

TechNet, the trade association that was meeting with members of Congress this week, spoke virtually with the two top Democrats in Congress — House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer — with a focus on a federal privacy law and “a global competitiveness package.” The group also met with Sens. Mark Warner, Ed Markey and others.

Former President Obama apparently wants to exempt paid ads that “microtarget certain groups” from Section 230.

The Chamber of Progress wants Democratic antitrust reformers in Congress to disavow conservative comments that competition bills would punish big companies for pro-LGBTQ+ stances. The Chamber — a tech-backed, Democratic-allied group — has been highly critical of bills to target tech companies with new antitrust rules.

In the states

Apple left an industry group that has been lobbying in states for narrower privacy protections.

Amazon, here we come,” Biden told a union conference. His statement was an apparent show of support for the surprise victory of Amazon workers at a Staten Island warehouse who sought to form a union.

SpaceX has to pause its expansion in Texasbecause it didn’t provide enough documentation about environmental impacts. Environmental researchers near the Boca Chica site have said they’re especially concerned about the effects on some rare bird species in a refuge next to the Starbase facility.


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Around the world

Meta said it’s disrupting Russian influence campaigns against Ukrainians on its platform. That includes an operation called “Ghostwriter” that sought to phish Ukrainian military personnel to gain access to their accounts and post disinformation.

In the media, culture and metaverse

Apple-funded researchers found that the company’s own apps are rarely the most popular in a given category. Their paper comes as Apple fights against regulators around the world who are sympathetic to the notion that rivals like Spotify get anticompetitive treatment on iOS and have to pay overly high fees to go up against in-house offerings like Apple Music.

In data

$110,000: That’s the upper end of the starting salary range Walmart will pay for truck drivers. The trucking industry has been grappling with a “shortage” of drivers — I use scare quotes because many truckers take issue with that characterization. The tech industry has long dreamed of automating away trucker jobs, but Walmart’s investment in attracting and training talent suggests it doesn’t buy into the ambitious time horizons proposed by autonomous driving companies.


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Tweeters anonymous

In a leaked memo, the New York Times’ executive editor, Dean Baquet, told the newsroom: “[It's] clear we need to reset our stance on Twitter.” Baquet said journalists can be “overly focused on how Twitter will react to our work, to the detriment of our mission and independence.” While all Twitter news seems to concern Elon Musk this week, this story has more to do with the developing media narrative on journalist harassment, which Baquet called “an industry-wide scourge.”

Thanks for reading — see you Monday!

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