The strength of the sanctions imposed by the international community had perhaps not been foreseen by Vladimir Putin, who is waging war in Ukraine. The consequences are already being felt, with the rouble losing 30% against the dollar, and the central bank having to raise its rates sharply. The strength of the sanctions imposed by the international community may not have been foreseen by Vladimir Putin, who is waging war in Ukraine. The consequences are already being felt, with the rouble losing 30% against the dollar and the central bank having to raise rates sharply. This morning’s update
International sanctions are weighing on Russia’s economy
New rounds of sanctions were announced by the international community over the weekend. The European Union countries agreed to exclude some major Russian banks from the Swift payment system. In addition, some of the assets held by the Russian Central Bank have been frozen. This de facto limits its ability to support the exchange rate of its fiat currency.
The fall of the Russian rouble (RUB) was therefore felt to be coming, but few had envisaged that it would be so brutal. Since yesterday, the RUB has plummeted by 30% against the dollar, touching 0.0095 USD this morning:
The fall of the RUB rate since yesterday (Source: Xe.com)
It’s a historic fall for the ruble, which has hit its lowest level ever recorded.
Russian economy targeted
In response, Russia’s central bank drastically raised rates from 9.5% to 20%. In addition, it ordered companies to sell 80% of their foreign currency reserves in order to support the ruble. She also confirmed this emergency measure in a statement:
The external conditions have changed drastically for the Russian economy. [The rate hike] will compensate for the increased depreciation [of the ruble] and the risk of inflation. “
The central bank also confirmed that it would resume buying gold on the domestic market. As a further consequence of the series of sanctions, the Moscow Stock Exchange will only open at 3pm today
Measures that work
The sanctions applied by Europe and the rest of the international community already seem to be working, their aim being to strangle Russia economically so that it cannot continue its war in Ukraine. In the future, some speak of annual inflation reaching nearly 70%:
The Russian Ruble sank to a new all-time low, trading at 117.62 RUB/USD. Since Jan. 1, 2022, the ruble has depreciated by as much as 47.33% against the USD. Conflict in Eastern Europe is fueling the currency’s destruction. At present, I measure Russia’s inflation at 69.4%/yr. pic.twitter.com/PIIlppuhmT
– Steve Hanke (@steve_hanke) February 28, 2022
For the Russian people, the consequences are of course already being felt. Since the weekend, there have been long queues in front of cash machines as Russians withdraw cash in droves. Russian expatriates also fear that they will no longer be able to send money into the country if they are excluded from the Swift system. The term “financial atomic weapon” therefore seems justified when one sees the rapid effects on the Russian economy.
