Illustration by Ahmed Bilal

Russia’s Pending Economic Crisis

What does Russia’s attack on Ukraine mean to its own financial state, and is there a looming ruble crisis?

Mar 7, 2022

In the wake of an unprovoked full-scale assault of Ukraine, an overwhelming majority of people and countries around the world have condemned the Russian attack. The past weeks have undeniably brought substantial pain for millions of Ukrainians. In a worldwide effort to bring an end to this war, nations around the globe have imposed heavy sanctions on the country and its citizens.
Among the long list of international sanctions was a ban from the SWIFT transaction payment system. SWIFT is the dominant payment messaging system used for facilitating international financial transactions, processing a majority of the global economy’s financial activity. Though removing Russia from SWIFT does not halt all financial transactions for the country, it makes them significantly slower and more difficult to conduct. Coupled with freezes enforced throughout the global economy, including those from historically-neutral countries like Switzerland, Russia’s banking infrastructure is currently facing unprecedented challenges. Of the Russian Central Bank’s 643 billion U.S. dollars worth of foreign financial assets, a majority is currently frozen under these new sanctions.
Other policies have even begun targeting Russian oligarchs in an effort to apply additional pressure to Vladimir Putin through his inner circles. Governments around the world including France, Japan and Germany have already begun seizing yachts and other high-valued financial assets, sending a clear message of warning to Putin.
As the war trudges onward, the Russian economy has quickly begun to feel the burden imposed by sanctions from Ukrainian allies along with the ever-increasing costs of war. Some reports estimate the daily cost of the war in the range of 20 to 25 billion U.S. dollars per day. This represents a significant financial burden for the Russian economy to bear while their assault continues. Coupled with investors quickly selling out of Russian assets, the ruble has seen significant losses in the past days — falling just short of 30 percent of its previous value. This left officials scrambling to find ways to support a falling economy.
In ordinary circumstances with an excess supply of rubles, the central bank would sell foreign assets to buy back their currency, stimulating demand and maintaining stable prices. In this case however, with a majority of their accounts frozen, the bank was extremely limited in its ability to do so. This left the ruble much more vulnerable to market forces than was originally expected.
With few options available, the Russian government on Tuesday told the country’s Ministry of Finance to leverage its national wealth fund, purchasing shares in Russian companies equal to a value of 10.3 billion U.S. dollars.
In addition to this, interest rates were raised from 9.5 percent to 20 percent on Monday — rivaling that of 2014 when interest rates were hiked to 17 percent during the annexation of Crimea. Higher interest rates are generally thought to help governments curb inflation by incentivizing lower spending and higher savings. This reduces the amount of money in active circulation and makes it more expensive to borrow. Interest rates as high as 20 percent, however, are quite uncommon for a highly developed economy like Russia’s and demonstrates a desperate move to keep investors in Russian assets. Of the world’s 20 highest valued economies, 10 countries have interest rates at one percent or less with the next five countries at five percent or less.
In a series of moves to further restrict movement out of Russian assets, the finance ministry recently ordered exporters to sell 80 percent of their foreign currency reserves. Additionally, the Moscow exchange was shut down last Monday, halting all stock trading for the day. Brokers were also banned from selling securities belonging to foreign investors.
Though these efforts have managed to contain some of the panic, the rouble has still fallen to its lowest value in over 30 years. The commercial Russian bank Tinkoff quoted customers exchanging foreign currencies of 164 rubles per U.S. dollar for ruble sellers but only 92 rubles per U.S. dollar for buyers. Large spreads like these are used to protect exchanges from fast depreciation in volatile assets and demonstrates a public uncertainty around Russia’s ability to maintain their currency from further depreciation.
Adding to this downward-spiraling price pressure are looming financial crisis concerns from citizens. Photos began appearing on Monday of long-ATM lines where people have begun withdrawing money from their banks out of fear that their cards would stop working. Though officials have promised to keep these ATMs supplied, it will come at the cost of more money printing, furthering inflation and decreasing the value of the currency.
Russia’s financial positioning and available liquidity at this time represent a significant challenge for the country’s ability to continue funding its attack of Ukraine, while simultaneously preventing excessive inflation at best, with economic signals leaning closer to the start of a turbulent recession. Though Russia has around 190 billion U.S. dollars worth of assets, 130 billion of that are in gold and 60 billion are in Chinese yuan. With almost all of these assets rendered unusable and additional sanction measures mounting, Russia’s financial situation appears grim.
Corban Villa is Deputy Web Chief. Email him at
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