One of London’s financial district’s longest-serving fund management chief executive, Hendrik du Toit, has warned that ‘weaponising finance’ to punish Russia for its invasion of Ukraine could prove an “expensive decision” – one that could eventually give rise to a more fragmented financial system.
Du Toit, who is CEO of Ninety One – a global investment firm offering active strategies across equities, fixed income, multi-asset and alternatives to institutions, advisors and individual investors around the world – said while it was right that the Kremlin was feeling pressure from the west to stop its brutal war in Ukraine, measures designed to cripple Russia financially could have far reaching economic consequences in the longer term.
“The fact that everything to do with Russia is bad is just wrong. I grew up in a country under sanctions and I understand the negative consequence of that, the South-Africa born fund management boss said. We need to squeeze the regime to stop the war, but we shouldn’t cut off everything.” He added: “This may be a very expensive decision to isolate a large and powerful nation forever. We need to differentiate between our long-term interests in the world and our near-term interests.” The West has imposed – and continues to look for opportunities to further impose where possible – severe economic sanctions on Russia since it began its invasion of Ukraine in February, including freezing the assets of its central bank, which holds a significant proportion of its reserves in US dollars.
Countries in Europe have also vowed to scale back their purchase of Russian oil and gas, while several Russian banks have been excluded from SWIFT, the main messaging system that underpins financial transactions globally.
Separately, some of the world’s largest investment banks including Goldman Sachs and JPMorgan, as well as law firms and several trading companies, have begun unwinding their operations in Russia. Asset managers with investment funds exposed to Russian companies have also declared they will sell down their holdings when Moscow allows foreign investors to trade Russian equities and debt.
Du Toit said some of the financial sanctions could prove costly over the longer term, including a weakening of the US dollar’s dominance as the currency of choice for global trade.
“The US may have cost itself decades in terms of dollar dominance by weaponizing it now. No one is going to be relying on the US dollar alone outside the US orbit.” He added: “It has worked now, it will squeeze Putin, but we will have alt-fi (alternative finance), which will make things more complex and more expensive in time. We’ll have very fragmented economies.” The comments from du Toit echo recent remarks made by Gita Gopinath, one of the International Monetary Fund’s (IMF) top officials. The IMF’s first deputy managing director told the Financial Times in March that sanctions imposed on Russia by the West could gradually dilute the dominance of the US dollars, as well as encourage the emergence of small currency blocs based on trade between separate groups of countries.
“The dollar would remain the major global currency even in that landscape, but fragmentation at a smaller level is certainly quite possible,” Gopinath told the Financial Times. Du Toit added finance should not be turned into “judgementalism”.
“We in the West make many mistakes. You should have judgement when you use your money, but it shouldn’t be a constant weaponization of finance,” he said. “If we are going to be judgemental and weaponise money, the world is so imperfect we will have nowhere to invest,” du Toit added.
The writer is our foreign correspondent based in the UK