MOSCOW – Ordinary Russians faced the prospect of higher prices and curtailed travel abroad as Western sanctions over the invasion of Ukraine slashed the value of the ruble, sending restless depositors queuing up at banks and ATMs on Monday in a country that has seen more than one currency. Disaster in the post-Soviet era.
The Russian currency fell nearly 30% against the US dollar after Western countries announced unprecedented moves to block some Russian banks from using the international SWIFT payment system and restrict Russia’s use of its huge foreign exchange reserves. The exchange rate later regained strength after a swift move by the Russian Central Bank.
But the economic pressure got tougher when the United States embodied sanctions to paralyze any assets of the Russian Central Bank in the United States or held by Americans. The Biden administration estimated that the move could affect “hundreds of billions of dollars” of Russian funding.
US officials have said that Germany, France, the United Kingdom, Italy, Japan, the European Union and other countries will participate in targeting the Russian Central Bank.
“We are in uncharted territory from imposing all these nuclear sanctions options on Russia at the same time over the weekend,” said Elena Rybakova, deputy chief economist at the Institute of International Finance, a banking trade group. One time like this would have a very big impact.”
The Russians, worried that the sanctions would deal a severe blow to the economy, have been flocking to banks and ATMs for days, with reports on social media of long queues and machines running out. People in some Central European countries also rushed to withdraw money from subsidiaries of Russia’s state-owned Sberbank after the Russian parent bank came under international sanctions.
Moscow’s Ministry of Public Transport warned city residents over the weekend that they could face problems using Apple Pay, Google Pay and Samsung Pay to pay fares because VTB, another Russian bank facing penalties, handles card payments on Moscow metros, buses and trams.
Businessman Vladimir Vyasilov found that flights for his foreign trip on a student visa were banned. He was thinking of driving to another country and flying from there.
“I have been at odds with the decisions of all authorities for a very long time and for this reason I store all my money only in currencies, and I am skeptical of Sberbank, VTB, of national banks in general,” he said. I cannot say that I am ready (for sanctions) but I was prepared as much as possible for being a citizen of the Russian Federation. “
Economists and analysts said that a sharp depreciation of the ruble will mean a decrease in the standard of living of the average Russian citizen. Russians still rely on many imported goods, and the prices of such items, such as iPhones and PlayStations, are likely to rise. Traveling abroad will become more expensive because rubles buy less currency abroad. The deeper economic turmoil will come in the coming weeks if price shocks and supply chain problems cause Russian factories to close due to lower demand.
“This economy is going to spread very quickly,” said David Feldman, professor of economics at William & Mary in Virginia. Anything that is imported will see the local cost rise in the currency. And the only way to stop it is to provide great support.”
Russia has moved to produce many goods domestically, including most food, to protect the economy from sanctions, said Tyler Kostra, associate professor of politics and international relations at the University of Nottingham. He predicted that some fruits that could not be grown in Russia, for example, “will suddenly be much more expensive.”
Kostra, who studies economic sanctions, said electronics would be a pain point, as computers and mobile phones would have to be imported and the cost would rise. Even foreign services like Netflix may cost more, although such a company can lower their prices.
The auto sector, a major employer, said Chris Weaver, CEO of Macro-Advisory, a strategy consulting firm in Eurasia, “is taking a very quick hit with the ban on the import of microchips and other parts.
As long as a few Russian banks are spared the SWIFT cutoff, he said, Russia will still be able to continue to export and show modest growth this year and earn enough to support or bail out big companies or employers.
“So it really depends critically on whether SWIFT will remain open or whether that last channel is closed,” Weaver said.
After the West imposed sanctions on Russia for its 2014 seizure of Ukraine’s Crimea, the Russian Central Bank cleaned up weak banks and prepared for the possibility of further sanctions.
“So there is no need to fear any kind of immediate crisis or collapse” this year, he said. It is clear that only if these sanctions become more stringent and extended for several years, it is clear that the situation will deteriorate during that period.
The ruble’s slide evoked ugly memories of past crises. The currency lost much of its value in the early 1990s after the end of the Soviet Union, with inflation and loss of value prompting the government to get rid of three zeros from the ruble coins in 1997. Then came the further decline after the 1998 financial crisis in which many depositors lost their savings and another plunge In 2014 due to low oil prices and Crimea sanctions.
On Monday, the Russian Central Bank sharply raised its key interest rate to 20% from 9.5% in a desperate attempt to prop up the ruble and prevent a bank run. It also said the Moscow Stock Exchange would remain closed.
European officials have said that at least half of Russia’s estimated $640 billion in hard currency, some of which is held outside Russia, will be crippled. This significantly increased pressure on the Russian currency by undermining the ability of the financial authorities to support it by using reserves to buy rubles.
Kremlin spokesman Dmitry Peskov called the sanctions “heavy”, but said that “Russia has the necessary capabilities to compensate for the damage.”
The steps taken to prop up the ruble are themselves painful because raising interest rates can stifle growth by making companies’ access to credit more expensive. Experts said that Russians who have borrowed money, such as homeowners with mortgages or business owners who have borrowed, may also be hit by the compounding interest rates.
The ruble fell about 30% against the US dollar early on Monday but stabilized after the central bank’s move. Earlier, it traded at a record low of 105.27 per dollar, down from around 84 per dollar late Friday, before recovering to 94.60.
McHugh contributed from Frankfurt, Germany. Associated Press reporters Kelvin Chan in London, Ken Sweet in New York, and Paul Wiseman in Washington contributed.
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