The crippling penalties imposed on Russia to invade Ukraine They are already wreaking havoc on the lives of ordinary Russians, who can only expect things to get worse in the coming days and weeks, experts say.
The measures announced by the United States and its allies over the weekend include targeting the ability of the Russian Central Bank to support the country’s currency, the ruble, which decreased by about 30% Against the US dollar on Monday to less than 1 cent. It regained some strength after the Russian Central Bank more than doubled its key interest rate to 20% to prop up the currency.
The developments made Russians faced with the prospect of higher prices and curtailed travel abroad as the ruble’s depreciation sent nervous depositors pouring into banks and ATMs. Social media posts carried reports of long queues and cash machines running out.
Moscow’s Public Transport Administration warned city residents over the weekend that they could have trouble using Apple Pay, Google Pay and Samsung Pay to cover fares because VTB, the Russian bank that handles transactions, was among the entities affected by international sanctions.
With flights banned, businessman Vladimir Vyasilov told The Associated Press he is considering driving to another country to catch a flight abroad on a student visa. “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 can’t say I was ready [for sanctions] But I was as prepared as possible for being a citizen of the Russian Federation. ”
At least half of Russia’s estimated $640 billion in hard currency reserves have been frozen, according to European officials.
Russia’s central bank on Monday raised its key interest rate to 20% from 9.5% in a last-ditch effort to stem a scramble for banks. Analysts say this means that Russian homeowners with a mortgage or business owners who have taken out loans could be affected by the price doubling.
Russians will see their standard of living fall as the prices of imported goods including iPhones rise.
“Before the weekend, there were indications that the war in Ukraine had caused panic among Russian families and businesses. Russians queued at bank branches and ATMs were emptied while people were trying to exchange their rubles for foreign currencies,” said Tatiana Orlova, an analyst. In Oxford Economics, in a note on Monday to clients. There have been local reports of people buying white goods [such as stoves and other large home appliances] To turn their cheap rubles into something of tangible value.”
Because we are deprived of the fundamentals and facing runaway inflation, we are going to start to see general unrest,” Karl Weinberg, chief economist at High Frequency Economics, said on a conference call Monday.
David Feldman, Professor of Economics at William & Mary in Virginia Tell Associated Press. “Anything that is imported will see the local cost of the currency rise. The only way to stop it is going to be the massive subsidy.”
“Economic blockade”
Weinberg said the wide-ranging sanctions the United States and its allies have imposed on Russia are like “an economic blockade, and I don’t think the Russian economy can afford it.”
“If we had three weeks of what’s happening today for the Russian economy, it would be over,” Weinberg said. “My gut feeling is that the Russian economy cannot survive three weeks of this without failing completely.”
“Western democracies have surprised many with their strategy to put intense economic pressure on Russia by effectively isolating it from global financial markets,” Oliver Allen, a markets expert at Capital Economics, told investors in a research note. “If Russia continues on its current course, it is very easy to see how the latest sanctions could be just the first steps in a sharp and lasting severing of Russia’s financial and economic relations with the rest of the world.”
Russia has made strides in producing many goods domestically, including most of its food, to protect its economy from sanctions, Tyler Kostra, associate professor of politics and international relations at the University of Nottingham, told the AP. He noted, for example, that fruit that could not be grown in Russia would be “suddenly much more expensive.”
Russian consumers may be able to get food, but the country’s farmers may not be able to get parts for their equipment, Weinberg offered.
The auto sector, a major employer, said Chris Weaver, CEO of Macro-Advisory, a strategy consulting firm in Eurasia, “is taking a hit very quickly with the ban on the import of chips and other parts.”
Weinberg said he was “relieved” that China was not trying to neutralize the damage to Russia, which the economist said could be achieved by Russia selling all of its exports to Beijing.
Weinberg said of the central bank in Beijing: “The People’s Bank of China could be a lifeline for the ruble and the Russian economy, and China failed the ‘best friends’ test by a wide margin.”
The economist noted that the People’s Bank of China would be at risk of sanctions if it bought gold from Russia. Weinberg stated that “China is not ready to form a separate monetary system with Russia at the moment, which they should do.”
“Although China can destroy our economy, I don’t think it is in China’s interest to blow up the global economy.”
The Associated Press contributed to this report.
