Russians line up outside banks as currency plummets amid sanctions
MOSCOW (AP) — Ordinary Russians faced the prospect of higher prices and foreign travel as Western sanctions against invading Ukraine sent the ruble plummeting, leading people uncomfortable queuing 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 plunged around 30% against the US dollar after Western countries announced measures to block some Russian banks from the international payment system SWIFT and to restrict Russia’s use of its huge foreign currency reserves. foreign. The exchange rate then regained ground after swift action by the Russian central bank.
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But economic pressure tightened when the United States announced new sanctions on Monday to tie up all Russian central bank assets in the United States or held by Americans. The Biden administration estimated the move could impact “hundreds of billions of dollars” in Russian funding.
Biden administration officials have said Germany, France, the United Kingdom, Italy, Japan, the European Union and others will join the United States in targeting Russia’s central bank.
Tyler Kustra, assistant professor of politics and international relations at the University of Nottingham, said he could not recall a similar example from the past of an economy brought to its knees by global sanctions.
“It is the West that is causing a currency crisis for Russia,” said Kustra, who studies economic sanctions.
Russians who fear the sanctions could deal a crippling blow to the economy have been flocking to banks and ATMs for days, with reports on social media of long queues and sold-out machines. People in some central European countries have also rushed to withdraw cash from branches of Russian state bank Sberbank after it was hit by international sanctions.
Moscow’s public transport department warned residents of the city over the weekend that they may encounter problems with Apple Pay, Google Pay and Samsung Pay paying fares because VTB, one of Russia’s banks subject to sanctions, handles card payments on the Moscow metro, buses and trams. .
A sharp devaluation of the ruble would mean a drop in the standard of living for the average Russian, economists and analysts have said. Russians are still dependent on a slew of imported goods and the prices of such items are likely to skyrocket, such as iPhones and PlayStations. Foreign travel would become more expensive as their rubles would buy less foreign currency abroad. And the deeper economic turmoil will come in the weeks ahead if price shocks and supply chain issues cause Russian factories to shut down due to lower demand.
“It’s going to trickle down to their economy very quickly,” said David Feldman, an economics professor at William & Mary in Virginia. “Anything imported is going to see the local cost of currency skyrocket. The only way to stop it will be heavy subsidies.
Russia decided to produce many goods on its territory, including most of its food, to protect the economy from sanctions, Kustra said. He expected that certain fruits, for example, which cannot be grown in Russia “will suddenly be much more expensive”.
Electronics will be a sore spot, with computers and cellphones having to be imported and costs rising, Kustra said. Even foreign services like Netflix might cost more, though such a company might lower its prices so Russians can still afford it.
The Russian government will have to step in to support declining industries, banks and economic sectors, but without access to hard currencies like the US dollar and Euro, they may have to resort to printing more rubles. It’s a move that could quickly escalate into hyperinflation.
The fall of the ruble recalled previous 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 leading to the government removing three zeros from ruble banknotes in 1997. Then came a further drop after a 1998 financial crisis in which many depositors lost their savings and another drop in 2014 due to falling oil prices and sanctions imposed after Russia seized the Ukrainian peninsula of Crimea.
The Russian central bank acted immediately to try to stop the ruble’s slide. It raised its key rate sharply in a desperate attempt to support the currency and prevent a run on the banks. He also said the Moscow Stock Exchange would remain closed on Monday.
The bank raised the key rate from 9.5% to 20%. This follows a Western decision on Sunday to freeze Russia’s hard currency reserves, an unprecedented move that could have devastating consequences for the country’s financial stability.
It was unclear how much of Russia’s estimated $640 billion hard currency stack, some of which is held outside Russia, would be crippled. European officials said at least half of them would be affected.
This greatly increased the pressure on the ruble by undermining the ability of financial authorities to support it by using reserves to buy rubles.
Kremlin spokesman Dmitry Peskov called the sanctions that included a freeze on Russia’s hard currency reserves “heavy” but said on Monday that “Russia has the potential to compensate for the damage.”
The measures taken to support the ruble are themselves painful because rising interest rates can dampen growth by making it more expensive for companies to obtain credit. Russians who have borrowed money, such as homeowners with mortgages or business owners who have taken out loans, could also be affected by the central bank’s decision to double interest rates, Kuskra said. .
The central bank ordered further measures to help banks weather the crisis by injecting more liquidity into the financial system and easing restrictions on banking operations. At the same time, it temporarily banned nonresidents from selling government bonds to help ease pressure on the ruble from panicked foreign investors trying to cash out those investments.
The ruble fell around 30% against the US dollar early on Monday, but stabilized after the central bank’s decision. Earlier, it was trading at a record high of 105.27 to the dollar, down from around 84 to the dollar on Friday night, before climbing back to 94.43.
Sanctions announced last week had brought the Russian currency to its all-time low against the dollar.
Sweet contributed from New York and McHugh from Frankfurt, Germany. AP reporters Kelvin Chan in London and Daria Litvinova in Moscow contributed.