Unprecedented sanctions on Russia are causing implications for the global economy.
The United States and Europe have agreed to separate some Russian banks from the SWIFT messaging system used to carry out trillions of dollars worth of transactions each day. This is a catastrophic option called the “nuclear option” of sanctions. They also vowed to prevent Russia from accessing some of its foreign exchange reserves and make it difficult to offset the effects of sanctions.
Two days ago, the White House announced a multi-faceted sanctions package that separates major Russian banks and businesses from Western funding and imposes direct financial costs on many of Russia’s top allies. Did. It also restricted access to Russian semiconductor products and the technology needed to maintain the industrial sector and military power. The Western government also sought to personally punish Putin with individual sanctions on his personal assets held abroad.
Experts on the effectiveness of sanctions believe that the combination of these measures constitutes an unprecedented global attack on the national economy (Russia in this case), the negative effects of which increase over time.
The United States and its allies also announced on February 26 that the Central Bank of Russia would block access to some of its more than US $ 600 billion foreign exchange reserves. Elina Rivakova, deputy chief economist at the Institute of International Finance, said the measure had a dramatic impact on Russia’s economy and banking system: “massive run”, sale of rubles, “probably the complete collapse of Russia”. Said that it would lead to. Financial system. “
Overall, these sanctions, if sustained, would not only have a devastating impact on Russia’s economy, but would also undermine Russia’s strategic capabilities by damaging the Putin administration’s breakwaters, the powerful energy sector and the military-industrial complex. Should reduce.
Clay Lowry, executive vice president of the Institute of International Finance, said the run was likely to get worse as Russians lined up in banks trying to get ruble deposits and convert them into safer dollars. rice field. And a runaway dollar in Russia will cause the central bank to run out of reserves.
Coupled with the new SWIFT restrictions announced by the West, central bank measures “are likely to cause serious damage to the Russian economy and its banking system,” Laurie said.
The ruble was trading at $ 97 on Tuesday. This is more than 10% higher than the lowest of 108.02 per dollar the day before. The Russian market closed at the beginning of Monday and then remained closed on Tuesday.
Many U.S. state governors and legislators have taken steps to withdraw state pensions and treasury funds from investment in Russian-owned entities or Russian companies that support the war in an attempt to add to Russia’s financial pressure. I was taking it.
Various companies have announced plans to reduce or withdraw their business in Russia, or to suspend their business in Ukraine due to conflict.
Investors were already at stake before Russia’s invasion in anticipation of a Federal Reserve plan to raise interest rates for the first time since 2018 to combat inflation.
The Federal Reserve is walking a tightrope and needs to raise interest rates enough to curb inflation, but not enough to put the economy in recession. Higher rates also put downward pressure on various investments, from equities to cryptocurrencies.
The war in Ukraine raises expectations that the Fed and other central banks may have to adopt a milder interest rate hike approach than previously expected.
As Russia intensified its war with Ukraine, oil prices soared and investors shifted more money to ultra-safe US Treasuries. Oil prices soared above $ 100 a barrel after Russia, a major energy producer, faced further isolation and economic damage from the invasion of Ukraine. With the rush into bonds, yields on 10-year government bonds returned to 1.77% in early February.
Russia is a major energy producer, and soaring oil prices and rising financial pressure from US and Russian allies to invade Ukraine have increased uncertainty about the outlook for the global economy.
“The ceasefire negotiations at the Belarus-Ukraine border have ended, but in addition to further sanctions, the military fire has never ended,” said Tan Boon Heng of Mizuho Bank of Singapore. Stated.
Export restrictions announced by the Biden administration earlier this week featured another particularly strong leverage held by the United States: US semiconductors and other high-tech equipment.
President Joe Biden said new US export restrictions would take away more than half of Russia’s current high-tech supply. It “damages” Russia’s purpose to modernize the Russian army, its proud aerospace industry, space planning, shipping and other industries, he declared.
By “reducing the ability to compete economically,” Biden said the limits of tech would be “a major blow to long-term strategic ambitions.”
US export restrictions are expected to rob Russian industry and the military of high-tech US components that help fighters and jet passenger planes fly and make smartphones smarter.
The United States said the European Union, Japan, the United Kingdom and other countries are also cooperating in the move to starve Russia’s high-tech parts.
The US response could add Russia to a group of the most restrictive countries for export control purposes, along with Cuba, Iran, North Korea and Syria.
These limit Russia’s ability to obtain products, including integrated circuits and integrated circuits, due to the global dominance of US software, technology, and equipment. The impact can extend to aircraft avionics, machine tools, smartphones, game consoles, tablets and televisions.
However, US export restrictions run the risk of motivating businesses to look for alternatives elsewhere, including China.
