It's the financial equivalent of a nuclear strike - something the Biden administration explicitly dismissed last week before surprisingly announcing it on Saturday.
Moscow sees this as an act of war. Russian President Vladimir Putin could retaliate against the US and its allies in a variety of ways, such as cutting off energy supplies, cyberattacking financial institutions, and further joining forces with China to create alternative payment platforms that would challenge the dominance of the US dollar.
Geopolitician and financial analyst James Rickards tweeted his prediction: “If you ban SWIFT payments, Russia will stop selling oil. This is about 9% of world production. There is already a shortage of energy. The result will be a global depression.” Even if global energy markets stabilize over time as new sources of supply emerge, confidence in the global financial system could be permanently undermined. Mutual trust of counterparties is the only thing that underlies transactions with fiat currencies.
If the financial system is used as a wide-ranging weapon of war to freeze assets and ban transactions, it is not only the immediate targets of sanctions that lose credibility in the system. The system itself becomes less reliable. The Russian authorities prepared for a financial doomsday scenario long before they decided to launch an offensive against Ukraine. They are steadily building up their gold holdings at the Central Bank and are developing alternative settlement systems with trading partners - although it is not yet clear how effective their preparations will be.
It seems clear that China, which depends on Russia for oil, coal, grain and other goods, will continue to do business with Putin. Will the US stop doing business with China? The fact is that the American economy is heavily dependent on cheap Chinese imports. Without them, the shelves at every Walmart would be nearly empty. If China had to fear global sanctions, it could start demanding payment in hard currency without counterparty risk, such as gold. Given the sheer size of the Chinese economy (which is many times the size of Russia's), the US and its allies will find it hard to resist any new significant Chinese de-dollarization moves.
Uncertainty about what will happen next is already enough to cause strategic shifts in the distribution of wealth in countries, companies and individuals alike. The less trust people have in banks and national currencies, the more often they will look for more reliable alternatives. There is no more reliable and permanent store of value than precious metals. No war and no global financial reset will be able to weaken the universally recognized status of gold and silver as the main money.