JThe Russian economy is reeling from international sanctions imposed in response to the Russian invasion of Ukraine.
After the first rounds of sanctions late last week, the United States, the European Union and other countries imposed several new measures aimed at squeezing the Russian economy and pushing Russian strongman Vladimir Putin to renounce its war in Ukraine. Russia’s stock market was closed on Monday as the value of the country’s currency, the rouble, plummeted amid crushing sanctions.
The ruble fell around 30% from Friday to Monday, hitting an all-time low, although it has since pared those losses a bit. At one point, the ruble was trading as low as 120 against the dollar, according to Reuters. As the rouble plummeted, Russian citizens were seen across the country queuing at ATMs to withdraw foreign currency.
Over the weekend, Western countries announced that some Russian financial institutions would be cut off from the SWIFT system, a move President Joe Biden had previously refused to pursue last week.
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The Society for Worldwide Interbank Financial Telecommunication, better known as SWIFT, is the leading secure messaging system that facilitates cross-border financial transactions and money transfers. SWIFT is supervised by the Bank of Belgium and is used by 11,000 banks and institutions worldwide.
US officials said the SWIFT decision was made in an attempt to send the ruble into a “free fall” and generate crippling inflation in a bid to force Putin’s hand.
The United States, Britain and the EU have also blocked Russia’s central bank from accessing much of its more than $600 billion in foreign exchange reserves, which it would otherwise use to halt the decline in the currency. ruble and slow down inflation. In doing so, Western powers have undermined Moscow’s efforts to insulate its economy from other sanctions.
“Our strategy, to put it simply, is to make the Russian economy shrink as long as President Putin decides to move forward with his invasion of Ukraine,” a White House official said. in a phone call on Monday.
Liam Peach, emerging markets economist at Capital Economics, said in a note that about 40% of Russia’s reserves are now off limits to Moscow.
“The spike in Western sanctions over the weekend has left Russian banks on the brink of crisis,” he wrote.
While Russia’s central bank initially suspended the opening of markets on Monday, it later decided to suspend trading entirely for the day under the weight of economic sanctions. The Russian central bank plans to provide an update on future trading at 9 a.m. local time on Tuesday, which is 1 a.m. EST.
S&P Global Ratings downgraded Russia’s credit rating to junk status due to the economic crisis.
The country’s central bank has decided to more than double interest rates, bringing them to 20%, the highest in nearly two decades.
“The external conditions of the Russian economy have changed dramatically,” the central bank said in a statement. “Due to the current situation, the Bank of Russia has decided not to open a stock market section, derivatives market section or derivatives market section on the Moscow Stock Exchange today.”
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On Monday, Switzerland, which prides itself on its international neutrality, took the decision to freeze the assets of Putin and hundreds of other people sanctioned by the EU last week. The move was a blow to Russian oligarchs, many of whom deposited their money in Swiss banks. Switzerland said it was abandoning its neutrality due to “Russia’s unprecedented military attack on a sovereign European state”.
Switzerland has also joined other European countries in banning Russian planes from entering its airspace.
Chris Miller, an assistant professor at the Fletcher School at Tufts University and a visiting scholar at the American Enterprise Institute, said that while the new Western sanctions on Russia are tough, they aren’t as tough as, for example, US sanctions against Iran have been .
“The sanctions will cause huge financial hardship for Russia and plunge it into a deep recession. Russia has said it has ‘protected’ its economy, but the fall in the Russian currency today shows that this is not not true,” Miller told the Washington Examiner.
Miller noted that the reality of the situation is that there are not many tools left at Moscow’s disposal to soften the blow of the powerful sanctions.
Since Russia supplies about 40% of Europe’s natural gas, the United States and its allies have left certain exemptions on payments for purchases of certain energy products. Even before the start of the war in Ukraine, Europe and the world as a whole faced an energy shortage. Energy products and other raw materials have increased since the start of the war.
Oil prices jumped more than 3.5% on Monday, while corn and wheat rose 4.8% and 5.5% respectively. Gold prices also remained high, as it is considered a safe haven.
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International retaliation for Russia’s invasion of Ukraine was swift. In just a few days, the situation has galvanized the resolve of NATO and EU countries to condemn and punish Putin’s regime. After Russia’s initial incursion last week, some countries like Germany were reluctant to go all-in on sanctions.
Over the weekend, however, the EU presented a united front and German Chancellor Olaf Scholz even announced before a special session of parliament a one-time increase of more than $100 billion in defense spending. He also pledged to increase Germany’s defense spending by more than 2% of the country’s gross domestic product.
Original location: Russia in ‘tremendous financial distress‘ as stock markets shut
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