Financial Meltdown of Russia – Sanctions Crash Its Economy

Russia is trying to avoid a financial crisis. President Vladimir Putin held crisis talks with his top advisers; After the ruble fell to a record low against the US dollar, Russia’s central bank doubled interest rates to 20% and closed the Moscow Stock Exchange. The European subsidiary of Russia’s hugest bank was on the edge of collapse. The savers were in a hurry to withdraw their deposits. Economists warned that country’s economy could drop by 5%.

The ruble lost about 20% of its value and traded for $100, previously falling to 40%. The start of trading on the Russian Stock Exchange was postponed and then wholly abolished. The latest blizzard of sanctions came on Saturday when the US, the EU, the United Kingdom, and Canada announced that they were expelling some Russian banks from SWIFT, a global financial messaging service; They also “paralyzed” the assets of the Central Bank of Russia.

The tightening of Western sanctions over the weekend has left Russian banks on the brink of crisis. The Putin government has spent the past eight years preparing for Russia’s tough sanctions by creating $630 billion in international reserves; Including currencies and gold, though part of that financial strength is now frozen.

Russia and Financial Meltdown

The US has also banned US dollar transactions with Russia’s central bank. According to Peach at Capital Economics, about 40% of Russia’s reserves are not limited to Moscow. External circumstances for the Russian economy changed dramatically.

Due to the current situation, the Bank of Russia decided not to open a stock exchange branch, a derivative market division, or a derivative market section on the Moscow Stock Exchange. It is worth noting that Russia is a leading exporter of oil and gas. However, many other sectors of its economy depend on imports. With the ruble depreciation, buying them will become much more expensive, which will increase inflation. The crackdown on leading banks and the exclusion of some of them from the SWIFT secure messaging system, which connects financial institutions worldwide, will also complicate export sales.