New Nation Report :
After Russia was cut off from the global bank payments system in punishment for Moscow’s invasion of Ukraine, the Russian ruble plummeted to a historic low of less than one US cent on Monday.
The Russian Central Bank quickly increased interest rates by more than doubling them to 20% in an attempt to stabilize the country’s financial markets and prevent the currency from plummeting further.
According to Bloomberg data, the rouble fell to nearly 118 per dollar in offshore trading on Monday after Russian President Vladimir Putin put his nuclear forces on high alert and the United States, Europe, and the United Kingdom imposed sanctions aimed at cutting Russia off from the global financial system.
In what market participants described as highly stressed trading conditions that made it tough for foreigners to sell, the exchange rate later recovered to approximately 102.
Long lines have formed to withdraw money from cash machines in Russia, despite the central bank’s apparent lack of a mechanism to stabilize the economy and ruble.
Last week’s forecasts of increased Russian bank runs and dwindling government reserves were realized this week as Russians hurried to sell their targeted currency for safer assets.
Over the weekend, the United States, Japan, and other Western nations imposed new sanctions on Russia, including limits on some Russian banks’ use to the SWIFT global bank payments system.
Restrictions on the Russian central bank aim to prevent it from accessing more than $600 billion in reserves held by the Kremlin, limiting its ability to support the ruble after it dropped to its lowest level in history last week.
S&P Global downgraded Russia’s debt rating to “junk” status on Friday, highlighting the potential that the military assault on Ukraine will wreak even more havoc on the country’s financial systems.
The ruble’s depreciation would undoubtedly cause inflation to surge, affecting all Russians, not just the Russian elites who had been targeted by previous sanctions. If Saturday’s sanctions are as draconian as described, the resulting economic dislocation could lead to domestic political instability for Putin.
The SWIFT financial communications system transmits billions of dollars every day between over 11,000 banks and other financial institutions all around the world.
When Russia attacked and annexed Ukraine’s Crimea and backed separatist forces in eastern Ukraine in 2014, allies on both sides of the Atlantic evaluated the SWIFT option. The allies rejected the initiative when Russia said that throwing it out of SWIFT would be comparable to declaring war. Since then, Russia has attempted, but failed, to build its own financial transfer system.
The partial disengagement from SWIFT announced on Saturday leaves Europe and the US room to increase fines later. Officials said they hadn’t decided which banks would be shut down yet, but that the goal was to impose targeted functional limits.
