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The sanctions unveiled over the weekend against the Central Bank of the Russian Federation are by far the most dramatic move to date in the West’s move to cut Russia out of the global financial system.
Russia has accumulated $643bn in reserves during the last eight years, chiefly in euros and gold but also in other currencies including the US dollar, the Japanese yen and sterling, which it hoped would be sufficient to cushion it against the impact of any sanctions imposed on the country.
More than two-thirds of these reserves are estimated to be lodged outside Russia in key financial centres including New York, London and Frankfurt.
Sanctioning the CBR prevents Russia from getting its hands on a lot of those reserves. It adds to the stranglehold on Russia’s economy imposed by locking the country’s main lenders out of SWIFT, the interbank financial telecommunications system, which facilitates cross-border payments among banks.
The effect of all this will be that Russian banks – and, by extension, Russian businesses – will not be able to make or receive payments as they fall due.
It will make trading with Russia almost impossible and, as such, is a recipe for sparking hyper-inflation in Russia and, in all probability, a major recession in the country.
It will certainly, at the very least, result in a major increase in the cost of living for ordinary Russians and shortages of a lot of goods including, potentially, some medicines.
As banks, corporates and individuals scramble to obtain hard currency such as the US dollar or the euro, the rouble has plummeted.
The currency, which has fallen by 65% against the US dollar during the last five years, fell to an all-time low against the greenback this morning.
It now costs around 100 roubles to buy one dollar – just a fortnight ago, only 77 were required. That is the official exchange rate.
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Source : skynews
