Russian currency plummets as sanctions are imposed
Western sanctions left the rouble, Russia’s currency, tumbling to a record low.
The news: The ruble fell around 30% against the US dollar after the United States, the European Union and the United Kingdom imposed sanctions on Russia and announced that they would block certain Russian banks from the payments system international SWIFT to prevent the country from using its 630 billion dollars in foreign exchange reserves, according to The Associated Press.
- Russia’s central bank has doubled the country’s key rate from 9.5% to 20%, according to CNBC. This action “is designed to offset the increased risk of ruble depreciation and inflation, the central bank said.”
- The bank also said it was releasing $8.78 billion of local bank reserves to boost liquidity.
- The ruble lost 20% of its value at the start of the trading day. Later, the bank decided not to open the stock market for the day.
Response from Russia: The Kremlin acknowledged the problems with the sanctions, but said the government had contingencies in place.
- “The economic reality has changed significantly,” Kremlin spokesman Dmitry Peskov told reporters. Reuters.
- “These are heavy sanctions, they are problematic, but Russia has the potential to make up for the harm.”
- “Russia has been planning possible sanctions for quite a long time, including the most severe ones. There are response plans, they have been developed and are implemented as problems arise.
- “We had no reason to doubt the efficiency and reliability of our central bank. There is no reason to doubt it now.
Why is this important: Growing US, EU and UK sanctions have hit Russian economy, says Axios.
- Currency devaluation threatens Russia’s ruble savings in banks.
- It also pushes interest rates and inflation higher.
- This devaluation will also encourage people to withdraw cash in droves and convert the money into a more stable currency like the dollar or the euro, which is already observed in Russian cities.