The severe sanctions that Ukraine has been waiting for eight years, that the West has been talking about for eight years, but until now never got beyond talking about, have finally been implemented.
While more attention was focused on the disconnection of the Russian financial system from the international payment network SWIFT and on those European countries that initially blocked this decision, the no less serious financial sanctions - the freezing of the reserves of the Central Bank of Russia (CBR) - were adopted with less noise. On February 18 this year, the CBR's reserves amounted to 643 billion US dollars in various currencies, in assets denominated in various currencies and in gold.
The move was announced by the EU and the US already on Saturday evening, but an official document appeared in the EU's official journal and on the US Treasury's website on Sunday/Monday night. The CBR reacted by raising the refinancing rate from 9.5% to 20% first thing on Monday morning. This will now be the minimum rate at which other Russian banks can borrow rubles from the central bank. This in turn means that all loans to bank customers will be at even higher interest rates. On the other hand, the attractiveness of deposits is also increasing, and this move by the CBR can be seen as an attempt to ensure the stability of the ruble in a situation where direct interventions are not available.
In view of this unprecedented increase in the refinancing rate (normally the CBR rate was changed by 0.5%, sometimes by 1%), the CBR postponed the opening of the Moscow Exchange trading session to 15:00 Moscow time, but later decided not to start trading at all on Monday. Basically, the CBR admitted that the country was in danger of a complete economic collapse.
On Monday morning, when the London Stock Exchange opened, Russian corporate bonds suffered a catastrophic fall. Rosneft - down 45%, Sberbank - down 75%, Gazprom - down 60%. In the coming days, the technical procedure to disconnect the Russian financial system from the international SWIFT payment system will be completed, which already means a blockade of the Russian economy from all sides.
Only recently, the Russian Ambassador to Sweden, Viktor Tatarintsev, had the audacity to say rudely that they don’t give a sh*t about sanctions. I doubt he would be ready to say the same now. In the past, commentators loyal to the Russian government used to boast that the West could buzz off because China would help them. Now, however, all China experts agree that China always takes a very pragmatic approach to such situations. That is to say, it is prepared to "help" if it costs nothing. For example, to vote in favor of something for Russia, or at least neutral, in international institutions, but never to risk a financial loss to itself. For example, by transacting with a sanctioned bank and exposing itself to the risk of a second round of US sanctions.
The freezing of the CBR's reserves means that much of the foreign exchange reserves that Putin's Russia had been hoarding for years for a rainy day (now it is clear that it was for war), by selling hydrocarbons, while tightening its belt, now that the rainy days have come and the war has started, are proving to have been hoarded for nothing. These reserves are locked and inaccessible. No transactions with this money are possible. Of course, currency in cash or gold cannot be blocked, but in the 21st century, these financial instruments are undoubtedly outdated.
On Monday, you had to spend more than 100 rubles to buy one euro. The currency market is extremely volatile at the moment, and this will be a good indicator of Russia's economic temperature in the coming days. So far, Iran (since the last century), Venezuela (2019), Syria (2020) and Afghanistan (2021) have all faced central bank asset lockups. This is the first time in history that a country as large as Russia has had its central bank assets blocked. And only Iran has so far been cut off from SWIFT.
It should be noted that being cut off from SWIFT does not mean that accounts are blocked. It means that transactions cannot be carried out through this system - quickly and securely. Transfers must be made in some other way - by cheque, fax or other instruments of the last century. While the initial stage is to cut off from SWIFT only those banks already on the sanctions list, there are growing calls for all Russian financial institutions to be cut off altogether.
There is no doubt that it is only a matter of time until the Russian financial system will be almost completely isolated, despite the backlash from big business. But here, it is a reputation, a supposedly intangible but also business-critical thing, that is playing against Russia. Putin's reputation in Europe and North America is now close to that of Hitler, Saddam Hussein and Bashar al-Assad. No respectable businessman or politician wants to be counted among the friends of this group. Since the decision has been taken at an informal level to strangle the Putin regime without mercy, the pressure for sanctions will only intensify regardless of the military situation in Ukraine.
The change of mood in the world was best demonstrated by the speech of German Chancellor Olaf Scholz in the Bundestag on Sunday, where he announced a radical change of course regarding Putin's Russia. Two new liquefied natural gas terminals will be built rapidly to reduce or even completely end Germany's dependence on Russian gas. The earlier decision to close all three of Germany's remaining nuclear power plants by the end of this year is very likely to be reconsidered.
It is safe to predict that the monetary policy that was initiated at the start of the fight against Covid-19 will soon be continued, that is, money will not be spared to mitigate the damage that isolating Russia from the civilized world will cause, nor to create new infrastructure that is not linked to Russia.
However, all this will be valid if the world continues as it has been. Unfortunately, Putin's paranoia, combined with megalomania, Napoleon complex and the "honor" code of the Leningrad backstreets, poses an additional threat. A new Kremlin propaganda narrative is gradually emerging: the "rotten" West, under the guise of sanctions, actually wants to rob Russia and take over its untold riches. To this, we have only one, solid answer under our national leader, the magnificent Putin: you will go to hell, we will go to paradise.