[Economics] Russian economy faces bleak outlook under sanctions

[#Wittels-]

The Russian currency lost 30% of its value against the dollar
Moscow, Russia, February 28. Residents of Russia face the threat of high inflation and the possibility of not being able to travel abroad, after the West imposed various economic sanctions in response to Russia's invasion of Ukraine.

The ruble plummeted on Monday and many Russians rushed to ATMs to withdraw funds.

The Russian currency lost 30% of its value against the US dollar, after the West announced measures to isolate certain Russian banks from the international financial system SWIFT, and to limit Russia's ability to use its foreign currency reserves. The exchange rate recovered somewhat after a swift intervention by the Central Bank of Russia.

But then the US Treasury Department announced new sanctions that would freeze any assets the Russian Central Bank has in the United States or held by Americans. Washington estimates that this will affect hundreds of millions of dollars in Russian funds.

US officials have indicated that Germany, France, Britain, Italy, Japan, the European Union and others will join the measure.

 

 

In Russia, long lines were forming at banks and ATMs, amid reports on social media that ATMs are running out of notes.

Moscow's public transport department will screen users who may not be able to pay with Apple Pay, Google Pay or Samsung Pay because sanctions hit the VTB, the Russian bank that runs payment systems for subways, buses and Moscow trams.

A sharp devaluation of the ruble would cause a sharp drop in the standard of living for ordinary Russians, analysts and economists agree. Russia is heavily dependent on imports, and prices for imported products are likely to skyrocket. Traveling abroad could become prohibitive as Russians will be able to buy fewer things with their rubles. And the economic situation could worsen in the coming weeks as price spikes and supply chain disruptions force factories to close.

“This is going to hit the economy fast,” predicted David Feldman, an economics professor at William & Mary College in Virginia.

 

“Everything imported is going to suffer a sharp increase in price due to the increase in the exchange rate. The only way to avoid it would be through massive subsidies,” he added.

The Russian government has to intervene to prop up industries and other sectors of the economy, but without access to hard currencies like the euro or the dollar, it could be forced to print at more rubles. That, in turn, could lead to hyperinflation.

The fall of the ruble was reminiscent of previous crises. The currency lost much of its value in the 1990s as the Soviet Union disintegrated, and the explosion reached such a point that the government was forced to remove three zeros from the banknotes in 1997. There was another collapse in 1998 following a financial crisis in which many people lost their savings, and another fall in 2014 due to the fall in oil prices and the sanctions imposed against Russia for its invasion of the Ukrainian peninsula of Crimea.

 

Link: https://vertigopolitico.com/internacional/internacional/notas/economia-rusa-enfrenta-sombrio-panorama-bajo-sanciones