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2.9 How the Latest Sanctions Will Impact Russia—and the World
The new sanctions package will be extremely painful for the Russian economy, but it’s two years too late to be a gamechanger. In a global context, however, it increases the risk of the fragmentation of the financial system.
Washington introduced yet another package of sanctions against Russia’s financial, energy, and technological infrastructure on June 12. Two years after Russia’s central bank was banned from using dollars, the Moscow Exchange and its subsidiaries the National Clearing Center and the National Settlement Depository were added to the sanctions list.
The latest measures effectively isolate the sanctioned companies from the global dollar system and forced the Moscow Exchange to stop trading U.S. dollars and euros, followed the next day by the Hong Kong dollar. Of the ten currencies that the exchange traded for rubles before the war, only four remain: the Turkish lira, the Belarusian ruble, the Kazakhstani tenge, and the main beneficiary of these changes, the Chinese yuan.
The idea of slapping U.S. sanctions on the Moscow Exchange and the National Clearing Center had been under discussion for two years. The Russian government had tried to protect the exchange by making it a mandatory part of the infrastructure used for the sale of gas for rubles, but that didn’t help. Now trading in dollars and euros in Russia will be done directly between buyers and sellers: exporters will hand over currency directly to financial institutions, and importers, accordingly, will buy.
The result of this direct trading will be an increase in the spread: the difference between the purchase price and sale price of a currency. It will likely now be more profitable for banks to work with both sellers and buyers of currency, and to bring them together. In other words, the interbank market will be skewed in favor of several large players doing very well out of the commission.
Another difficulty is that there are hardly any large interbank market operators left that have not been sanctioned. The currency market in Russia will most likely be divided into sanctioned and non-sanctioned segments, each with its own currency exchange rate.
The central bank will now determine the official exchange rates of the dollar and euro against the ruble on the basis of bank reports and data on the results of transactions received from digital over-the-counter trading platforms. Some companies have already begun to calculate indicative exchange rates for their clients. The central bank has issued assurances that individuals and legal entities will still be able to buy and sell both currencies through Russian banks, and that all funds in their accounts and deposits “remain safe”—though there have been restrictions in place on withdrawing cash in foreign currencies since March 2022.
29 RUSSIA Country Report July 2024 www.intellinews.com