Sanctions on Russia’s central bank can disrupt the country

On Sunday, February 27, the fiscal measures taken by Western nations or their allies against Russia doubled. Hours after Europe’s procrastination, the decision to separate the country and its banks from the international SWIFT system made the flow of money much more complicated for businesses and individuals, especially the directly targeted oligarchs.

Bruno Le Mer, French Minister of Economy, has taken this step “Financial nuclear bomb”.. However, the United States, Canada, France, the United Kingdom, Germany, Italy, and the European Commission have at the same time decided to go further by imposing direct sanctions on the Central Bank of Russia.

More than or in connection with the closure of the SWIFT system, these measures against the Central Bank of Russia could separate the country’s economy from the world’s financial system and deplete the country’s finances. To fund his war in Ukraine.

Although rare in history, it has already been done for Venezuela, Afghanistan, Cuba and Iran in the past, and the decisions of Western nations and their allies depend on it, according to US officials interviewed by the Financial Times. “Expulsion of Russia from the international financial system” To “Global Economic and Financial Paria”..

The power of war

The stated purpose is to prevent Russia from taking advantage of the $ 630 billion (€ 565 billion) all-out treasure chest in the vaults of various assets (euro, dollars, gold, yuan, etc.). Especially the result of its energy export.

“It has a direct impact on Russia’s ability to mitigate the effects of sanctions, because it depends on reserves for it.”Explains to FT Daniel Glaser, the former US Treasury Department. He addressed the issue of financing terrorism and financial crime.

Therefore, in a sense, it is the mother of all sanctions. It will enable what may still come and will undoubtedly have a more direct and serious impact on Russia’s economy and finances.

“If Russia does not control its reserves, it will have less to do and will be more vulnerable to future pressures.”Glasser continues.

The Financial Times states that these foreign exchange reserves are one of the pillars of the Russian economy. Most of them ($ 300 billion according to Bloomberg’s figures) are funded by other central banks in the United States, Germany, France, the United Kingdom, Austria, or Japan.

The inability to access and exchange them has very direct consequences: free fall since the beginning of the war in Ukraine has already exploded the risk of the country, its inhabitants and living expenses and is in trouble. Bank.

Sberbank’s European subsidiary is particularly at risk of bankruptcy, as bank panics rush the population to the counter and withdraw cash, as in the premise of a “bank run.” The Central Bank of Russia urgently raised interest rates to 20% to support its currency.

Russia can look to China in particular to sell some of its well-funded yuan to China. They represent about 13% of the currencies owned by the Central Bank of Russia. Fearing secondary sanctions, nevertheless, the latter may not listen to such demands. The country may also try to sell some of the world’s fifth largest inventory of 2,299 tonnes of gold to friends.

“I am convinced that the effects of these measures will be immediately felt by the Russian financial system. Explain American officials to FT. Market participants understand that if Russia loses its ability to support the ruble, the ruble will collapse. “

Finance is the source of war. In addition to the internal social unrest that can occur during an economic collapse, in addition to the support from the oligarchy, it can be a little more cracked and could constitute the most powerful means of defeating Vladimir’s purpose. Putin.