Implosion

The commercial and financial sanctions imposed by the US-led alliance on Russia is finally starting to bite.

This past week, long lines of anxious depositors formed outside banks across Russia. People were trying to withdraw their dollar and euro savings. The banks did not have enough of the currencies on hand. This could result in panic and force a run on Russian banks.

The past few days, the shares of Russian banks fell drastically. The quoted exchange rates for the Russian ruble varied widely from bank to bank. In many instances, the dollar that used to trade at about 90 rubles shot up to 200.

The most proximate cause for the currency volatility is the restriction imposed by the US on the Moscow Exchange (MOEX), Russia’s leading financial marketplace. The exchange could not, from this week, arrange settlements in either dollar or euro. Companies needing foreign currency will have to work out individual arrangements with their banks. This will drastically slow settlement of foreign currency obligations.

At the moment, it is nearly impossible to source dollars or euros in Russia. This bottles up whatever trade is still being conducted with the rest of the world.

The object of the financial sanctions is to stifle the flow of hard currencies that will help Russia finance its war against Ukraine. We know that despite the trade sanctions imposed on Russia, the aggressor nation still manages to export large amounts of natural resources and agricultural products through friendly third parties such as China, India and Iran.

Russia is particularly vulnerable to this latest sanction. Most of Russia’s citizens, wary over the volatility of the ruble, held their life savings in dollar or euro accounts. The supply of these hard currencies among Russia’s banks is insufficient to cover the demand for them among Russia savers. The banks were forced to close down servicing of withdrawals from their clients. Imagine the public anxiety this causes.

Given the new difficulty of settling obligations in hard currencies, western companies still doing business in Russia despite the sanctions will probably wind down their transactions. High technology components needed for Russia’s