In response to Russia’s invasion of Ukraine on Feb. 24, President Biden and other western leaders have placed a plethora of sanctions against Russia. Most of which target their financial institutions.
The U.S. placed a sanction against Russia’s Central bank, preventing Americans from doing business with the bank. This means that any assets that the bank has in the U.S. are frozen. Other countries like the European Union, the U.K., and Canada have since followed suit.
Russia has over $600 billion in currency reserves, but most of this cannot be accessed because of the sanctions. Over half of it is reliant on the ability to buy rubles (the Russian currency) from western financial institutions. The reserves must be exchanged for the other countries’ currencies in order for Russia to be able to import goods. The ability to access that money could be the key to stabilizing the inflation taking place in the country.
According to Michale Bernstam, an economist at Stanford’s Hoover institution, $250 billion is unavailable because those are government bonds of western-aligned countries, including the European Union, Japanese, and British bonds.
“We wanted to put these actions in place before our markets open because we learned over the course of the weekend from our allies and partners that the Russian Central Bank was attempting to move assets,” said an anonymous senior Biden administration official.
The sanctions are an effort to destabilize the Russian economy.
Russian banks were also banned from SWIFT, the Society for Worldwide Interbank Financial Telecommunication. SWIFT is the primary way for global banks to communicate, send and receive orders. Russia’s global banks will have to find an alternative way of communicating with other countries.
A Biden administrative official described the goal of the sanctions, “We’re committed to fully implementing sanctions and other anti-money-laundering financial and enforcement measures to maximal effect on sanctioned Russian officials and elites close to the Russian government, as well as their families and their enablers, We’re going to identify and freeze the assets they hold in our jurisdictions” said the official.
As of Mar. 8, the U.S. announced the ban on Russian imports of oil, petroleum, liquefied natural gas, and coal. This is important because crude oil is one of Russia’s top exports. Last year 3% of our imported gasoline came from Russia and the gasoline accounted for about 13% of U.S. exports according to The Hill.
The invasion is part of the reason why U.S. gas prices have been steadily rising. Shell Oil Company recently made headlines after it was discovered that they bought discounted crude oil from Russia in the midst of the invasion. The same day that the U.S. announced the ban, Shell issued an apology and pledged to stop all operations with Russia.
President Biden told Americans, “Defending freedom is going to cost.”
The deflation of the Russian ruble directly led to inflation. The value of the ruble is down nearly 30%. Inflation has been a nightmare for Russian citizens scrambling to get basic necessities like food which was already expensive. Now it’s even pricier, and people can’t buy as much. Prices also continue to soar for electronics, appliances, and cars in the country. Russians are taking money out of the ATMs and are trying to buy things of lasting value.
According to ABC news “Mastercard said cards issued by Russian banks will no longer be supported by its network and any Mastercard issued outside the country will not work in Russian stores or ATMs.”
The same is taking place for Visa cards because both American companies decided to suspend their operations in Russia on Mar. 5.
Before the value of the ruble began to fall, many Russian citizens hurriedly tried to exchange their currency for dollars or euros which currently holds more value than the ruble. Interestingly enough, the Russian central bank put a limit on the amount of foreign currency that citizens can withdraw.
This new reality makes Russian citizens reexamine their finances and urgently protect their money. The economic losses and financial hurdles that many Russians are facing does not compare to the lives lost in the invasion of Ukraine.