Page 30 - RusRPTJul24

The ruble exchange rate will become more volatile, and the more complicated it gets to import goods, the less demand there will be for foreign currency. Accordingly, prices for imported goods will rise further—as a result of new, more expensive schemes for circumventing sanctions. That will make it even more difficult for the central bank to fight inflation.
The new sanctions are turning the yuan into the main currency of exchange trading and settlements in Russia once and for all. In May, its share in exchange trading once again hit a new record, reaching 53.6 percent. Its share in the over-the-counter market was 39.2 percent. The Chinese currency accounted for just over a third of the total volume of foreign trade in the last year.
Despite U.S. sanctions, yuan trading continues, although the new restrictions cannot fail to have an impact on that too. The Chinese banks that are connected to the global financial system will have to sever their ties with the National Clearing House due to the risk of secondary sanctions. Either their place will be taken by financial institutions created exclusively to work with Russia that will not be scared off by secondary sanctions, or a new clearing intermediary will be created.
Both Moscow and Beijing have shown that they are capable of adapting to evolving sanctions. When leading Chinese banks stopped dealing with Russian clients over the threat of secondary sanctions, regional banks stepped up to take their place. Schemes with numerous intermediaries from places such as Kazakhstan and the UAE also began to be used more actively, and companies began to use cryptocurrencies in payments. Bartering is also now flourishing, with Russian products exchanged for Chinese goods, eliminating the need for any bank transaction at all.
In addition to new sanctions against financial institutions, the U.S. Treasury also broadened the definition of Russia’s military-industrial base, ties with which can result in sanctions for banks. Initially, that legislation covered transactions relating to five sectors of the Russian economy: defense, technology, construction, aerospace, and manufacturing. Now all companies that are sanctioned under executive order 14024 have been added to the list.
The new approach amounts to a direct ban on U.S. tech companies consulting for or supplying IT solutions (including tech support and updating cloud services) to anyone located in Russia. There are no obvious homegrown substitutions for customer relationship management (CRM) and enterprise resource planning (ERP) systems such as SAP and Oracle. Given the extent to which business processes are now digitalized at almost any major manufacturing or financial enterprise, the latest bans may even be more painful than the sanctions against financial infrastructure.
The sanctions lists also include very small intermediaries and shell companies used for circumventing sanctions, such as the Moldovan company Aerostage, which sent $80,000 worth of aircraft parts to Russia. The U.S. Treasury’s net is closing in on supply chains, and the chances of getting caught are increasing.
The new package of sanctions and broader definitions will be extremely painful for the Russian economy. They reduce productivity, increase costs, reduce
30 RUSSIA Country Report July 2024 www.intellinews.com