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Russian Rubles Could Become ‘Worthless’ as Allies Target Central Bank After SWIFT Move

Linas Kmieliauskas
Last updated: | 3 min read
Source: Adobe/Roman Sigaev


After the EU, Canada, and the US agreed to remove selected Russian banks from the SWIFT messaging system, the Russian Central Bank is to be targeted next, which could make rubles “close to worthless.”

In a joint statement on Saturday evening, the allies said they commit to ensuring that the Russian banks are disconnected from the international financial system and harm their ability to operate globally.

But what comes as a more unexpected and possibly more painful move is that the allies also said they “commit to imposing restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions.”

According to Rob Person, an Associate Professor of International Relations at the US Military Academy in West Point, this would mean that the central bank won’t be able to access most of its reserves for currency interventions or exchange dollars and euros for rubles.

“Rubles could (in theory) become close to worthless, with ordinary citizens conducting exchange in dollars. That would have to be on the black market, since it’s technically illegal to pay for things with dollars/euros directly. Dollars will be scarce & precious on the street,” Person said.

Per Bloomberg data, Russia has about USD 640bn in reserves, while its central bank had 16.4% of its holdings in dollars and 32% in euros at the end of June 2021.

Elina Ribakova, Deputy Chief Economist for the Institute of International Finance, also said that sanctioning Russia’s central bank is likely to have a dramatic effect on the Russian economy and its banking system.

“This would likely lead to massive bank runs and dollarization, with a sharp selloff, drain on reserves — and, possibly, a full-on collapse of Russia’s financial system,” she told Bloomberg.

However, it’s not clear how severe these restrictions will be.

Meanwhile, traders are preparing for “a catastrophe” on the Russian currency market on Monday.

“I think they will stop trading and then the exchange rate will be fixed at an artificial level just like in Soviet times,” former Russian Central Bank Deputy Chairman Sergei Aleksashenko, told Reuters. 

In other markets, increased volatility is also expected on Monday.

“Inevitably there would be spillovers and spillbacks, including more of a stagflationary impetus to the global economy and greater likelihood of Russian arrears to Western companies and creditors,” Mohamed El-Erian, part-time Chief Economic Adviser at Allianz and chair of Gramercy Fund Management, told Reuters.

At 06:56 UTC, bitcoin (BTC) traded at USD 38,797 and was down 1% in a day and 3% in a week. Ethereum (ETH) stood at USD 2,735 and was down almost 2% in a day and 1% in a week.

Meanwhile, Ukrainian Vice Prime Minister and Minister of Digital Transformation Mykhailo Fedorov said yesterday that the “Ukrainian crypto community is ready to provide a generous reward for any information about crypto-wallets of Russian and Belarusian politicians and their surroundings.”

Yesterday, the allies also committed to:

  • acting against the people and entities who facilitate the war in Ukraine and the harmful activities of the Russian government.
  • taking measures to limit the sale of citizenship—so-called golden passports—that let wealthy Russians connected to the Russian government become citizens of these countries and gain access to their financial systems.
  • launching this coming week a transatlantic task force that will ensure the effective implementation of the financial sanctions.
  • employing sanctions and other financial and enforcement measures on additional Russian officials and elites close to the Russian government, as well as their families, and their enablers to identify and freeze the assets they hold in the jurisdictions of the allies.

“Russia’s war represents an assault on fundamental international rules and norms that have prevailed since the Second World War, which we are committed to defending. We will hold Russia to account and collectively ensure that this war is a strategic failure for Putin,” the allies said, stressing that they are prepared to take further measures to hold Russia to account for its attack on Ukraine.

On Sunday morning, Kyiv is reported to be still under Ukrainian control despite increased Russian efforts to take the capital of Ukraine.
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