Status: 02/28/2022 08:57 a.m
The new Western economic sanctions have sent Russia’s currency into free fall. The central bank in Moscow reacts with a drastic increase in key interest rates.
New sanctions against Russia over the war in Ukraine have caused the ruble to plummet. Russia’s national currency lost around 30 percent against the dollar in the morning, falling to a record low. At times, 119 rubles had to be paid for one dollar.
In order to support the currency, the Russian central bank raised interest rates drastically. The bank said it would rise to 20 percent, according to Russian news agencies. That’s a jump of 10.5 points. The central bank also banned foreign sales of Russian securities.
assets frozen
The stock markets in Russia remained closed in the morning – apparently because the monetary authorities fear severe turbulence. It was initially unclear when trading would resume.
Western countries had previously introduced new economic sanctions against Russia. The EU’s fourth package of sanctions also includes punitive measures against the Russian central bank. According to EU Commission President Ursula von der Leyen, transactions with the central bank will be prohibited. In addition, all assets of the bank in the EU will be frozen. This is intended to prevent Russian President Vladimir Putin from financing his war against Ukraine.
Foreign exchange reserves are also located abroad
Russia has foreign exchange reserves in the billions. We are talking about almost 640 billion that Russia has invested in dollars, euros, gold, Chinese yuan, government bonds and other securities. However, these reserves are not exclusively domestic – which, according to experts, makes it considerably more difficult for Russia to continue to support the ruble exchange rate. This causes the national currency to collapse – with potentially drastic consequences for the population of Russia. A run on the country’s banks is also considered conceivable.
According to the EU chief diplomat Josep Borrell, around half of the financial reserves of the Russian central bank will be frozen in a joint action by the G7 countries. According to Borrell, the fact that not all reserves can be blocked is due to the fact that not all Russian financial assets are held in Western countries. Russia has recently parked its financial assets more and more in countries where they cannot be blocked.