Western sanctions begin to suffocate Russia’s economy

Western sanctions against Russia sent the Russian ruble down on Monday. As a sign of loss of confidence in the banking system, Russian households have begun to rush to ATMs.

“We will cause the collapse of the Russian economy.” Bruno Le Mer, who was asked about French information on Tuesday, said that the consequences of Western sanctions in response to the Ukrainian invasion were devastating to Russia’s financial and economic system. I warned that it would give a serious blow.

After first announcing asset freezes and export restrictions on Russian oligarchs and certain banks, the West decided this weekend to block reserves held by the Central Bank of Russia abroad, swifting Russian banks. Banking messaging system.

If this last step has sparked much controversy due to the division of Europe on this issue, the freezing of assets of the Central Bank of Russia is arguably the strongest sanctions taken by Europe and its allies. This is because it significantly limits the ability of financial institutions to support their home currency by preventing them from selling their assets in dollars or euros to buy rubles.

Reserves that cannot be partially used

Russia will have a $ 630 billion reserve to face western sanctions. However, some of these reserves are either in foreign currencies or are held in the form of securities with foreign currency institutions, making them unusable and significantly reducing the room for central bank operations.

For Sergei Khestanov, an adviser on macroeconomic issues at broker OpenBroker interviewed by AFP, Russia can still see things coming, but its main foreign currency resource, the export of raw materials, is unaffected by sanctions. .. “Unless there are actual sanctions on Russia’s exports, especially oil and gas, disasters will not occur,” he says, but “people will of course feel the impact.”

Still, the announced measures, which have not yet come into full force, have already had concrete consequences for the Russian economy. The ruble fell nearly 30% against the dollar on Monday morning. This Tuesday it cost 98 rubles to buy $ 1 compared to 78 rubles a week ago.

Another consequence of Western sanctions: The Moscow Stock Exchange cannot even open on Monday and is expected to remain closed until March 5. Certain Russian stocks listed on foreign exchanges, especially those of hydrocarbon giants, have experienced significant declines, sometimes down to -75%.

In addition, the desire of Europeans and their allies to make Russia a paria of world finance could boost inflation a bit further, reaching 8.7% in January already. Finally, there was a line in front of the ATM on Monday, a sign of the beginning of a loss of confidence in the Russian banking system and the value of the ruble.

Moscow is trying to limit the damage

Criticizing the sanctions of the “Lie Empire,” Vladimir Putin has announced drastic steps to support the ruble. From now on, Russian residents will no longer be able to remit foreign currency abroad, and Russian exporters will also be ordered to convert 80% of their foreign currency income after January 1st into rubles. They also need to continue to maintain this ratio of 80% of their financial assets in the ruble in the future.

The Central Bank of Russia was unable to intervene in the foreign exchange market and raised its key interest rate from 9.5% to 20% to “compensate for the depreciation of the ruble and the increased risk of inflation.” “I’m ready to take other steps,” she said.