The Russian invasion of Ukraine – and the harsh sanctions imposed by the West – are already having serious economic consequences in the country led by Vladimir Putin.
In the early hours of this Monday, the value of the ruble , the local currency, plummeted , falling more than 30%.
To deal with the crisis, the Russian Central Bank doubled its interest rate , raising it from 9.5% to 20%, in an attempt to contain the devaluation of its currency.
The collapse in the value of the ruble erodes the purchasing power of the currency and could hurt the savings of Russians, who are already showing some signs of concern.
This weekend, hundreds of people made long queues in different cities of the country to access ATMs and exchange houses, and thus be able to withdraw money in cash.
Russians are worried that their bank cards will stop working or that limits will be placed on the amount of cash they can withdraw.
Ahead of an emergency meeting between President Putin and his economic advisers on Monday, Kremlin spokesman Dmitry Peskov said: “These are severe sanctions, they are problematic, but Russia has the potential to make up for the damage.”
In addition, he assured that Moscow will respond with its own sanctions.
Along the same lines, the Central Bank called for calm and said that it has “the necessary resources and tools to maintain financial stability.”
In recent days, the West has applied harsh sanctions on Russia in response to the invasion in Ukraine.
One of the strongest is the removal of several Russian banks from the SWIFT network , the main international payment system. Russia relies heavily on this system for its oil and gas exports.
In addition, the United Kingdom, the United States and the European Union prohibited dealings with the Central Bank, state investment funds and the Ministry of Finance.
Russia has about $630 billion in reserves , accumulated from high oil and gas prices.
But because much of this money is stored in foreign currencies such as the dollar, euro and sterling, in addition to gold, a Western ban on dealing with Russia’s Central Bank restricts Moscow’s access to cash.
Last week, the Russian Central Bank was forced to increase the amount of money it supplies to ATMs after demand for cash hit the highest level since March 2020.
Analysis by Theo Leggett, BBC Business Correspondent
The sanctions imposed by the European Union, the United States, the United Kingdom and others are unprecedented.
It is one thing to block the foreign exchange reserves of a country like Iran or Venezuela, quite another to act against Russia, a country with a major role in world trade and a key supplier of oil and gas.
The reaction in the currency markets has been dramatic: the ruble tumbled, despite the central bank’s efforts to prop it up using interest rates.
Although there are already people withdrawing money from ATMs in Russia, citizens have not yet felt the real impact.
At a minimum, prices will increase dramatically; bank collapses, hyperinflation and a deep recession are potential consequences.
But sanctions are a two-way street.
Cutting off the central bank from its reserves and limiting Russian institutions’ access to the SWIFT network will not only hurt Russia: Western institutions also face debt losses, for example.
And then there is the risk of countermeasures from Russia, which could affect energy exports.
It is remarkable that such broad sanctions are imposed in such a unified manner. It is also a very big bet.
- BBC News World