MOSCOW (AP) – Ordinary Russians face the prospect of rising prices and limited foreign travel due to Western sanctions for …
MOSCOW (AP) – Ordinary Russians face the prospect of rising prices and limited foreign travel as Western sanctions over the invasion of Ukraine have led to sharp falls in the ruble, forcing troubled people to line up at banks and ATMs on Monday in a country that has seen more than one currency disaster in the post-Soviet era.
Russia’s currency has fallen by about 30% against the US dollar after Western countries announced steps to block some Russian banks in the international payment system SWIFT and limit Russia’s use of its massive foreign exchange reserves. Later, the exchange rate resumed after the rapid actions of the Central Bank of Russia.
But economic pressure intensified when later Monday the U.S. announced additional sanctions to block any assets of Russia’s central bank in the United States or from Americans. The Biden administration has estimated that the move could affect “hundreds of billions of dollars” in Russian funding.
Representatives of the Biden administration said that Germany, France, Britain, Italy, Japan, the European Union and others would join the United States in targeting the Russian central bank.
Tyler Coustra, an associate professor of politics and international relations at the University of Nottingham, said he could not recall a similar example from the past of an economy brought to its knees by global sanctions.
“It is the West that is causing a currency crisis for Russia,” said Kustra, who is studying economic sanctions.
Russians, fearing that sanctions will hit the economy hard, have been flocking to banks and ATMs for days, and long queues and vending machines have been posted on social media. People in some Central European countries have also rushed to pick up money from subsidiaries of Russia’s state-owned Sberbank after it came under international sanctions.
Moscow’s public transport department has warned residents over the weekend that they may have problems using Apple Pay, Google Pay and Samsung Pay to pay for travel because VTB, one of Russia’s sanctioned Russian banks, handles card payments in the Moscow metro. , Buses and trams. .
A sharp devaluation of the ruble would mean a drop in the standard of living of the average Russian, economists and analysts say. The Russians are still dependent on many imported goods, and prices for these goods, such as the iPhone and PlayStation, are likely to rise. Foreign travel would become more expensive, as their rubles buy less currency abroad. And deeper economic shocks will occur in the coming weeks, when price shocks and supply chain problems will lead to the shutdown of Russian plants due to declining demand.
“It will spread very quickly across their economy,” said David Feldman, a professor of economics at William & Mary in Virginia. “Everything that is imported will lead to an increase in the value of the currency. The only way to stop this will be serious subsidies. “
Russia has moved to produce many goods domestically, including most food, to protect the economy from sanctions, Kustra said. He expected that some fruits, such as those that cannot be grown in Russia, “would suddenly become much more expensive.”
Kustra said electronics would be a sore point, computers and mobile phones would need to be imported and the price would rise. Even foreign services such as Netflix may cost more, although such a company may lower prices so that Russians can still afford it.
The Russian government will have to intervene to support declining industries, banks and economic sectors, but without access to hard currencies such as the US dollar and the euro, they may have to turn to more rubles. This is a step that could quickly turn into hyperinflation.
The reduction of the ruble reminded of previous crises. The currency lost much of its value in the early 1990s after the collapse of the Soviet Union, with inflation and a loss of value that led the government to withdraw three zeros from ruble notes in 1997. Then there was another fall after the 1998 financial crisis, during which many investors lost their savings and another fall in 2014 due to falling oil prices and sanctions imposed after Russia’s seizure of the Ukrainian peninsula of Crimea.
The Central Bank of Russia immediately tried to stop the fall of the ruble. He sharply raised his key interest rate in a desperate attempt to support the currency and prevent a raid on banks. It also says that the Moscow Stock Exchange will remain closed on Monday.
The bank raised the base rate to 20% from 9.5%. It came after Sunday’s decision by the West to freeze Russia’s hard currency reserves, an unprecedented move that could have devastating consequences for the country’s financial stability.
It was unclear what share of Russia’s $ 640 billion currency, part of which is outside Russia, would be paralyzed. European officials have said at least half of this will be affected.
This sharply increased the pressure on the ruble, undermining the ability of the financial authorities to maintain it by using reserves to buy rubles.
Kremlin spokesman Dmitry Peskov called the sanctions, which included freezing Russia’s foreign exchange reserves, “severe”, but said on Monday that “Russia has the necessary potential to compensate for the damage.”
The steps taken to support the ruble are painful in themselves, because rising interest rates can hold back growth, making it more expensive for companies to get loans. Russians who have borrowed money, such as homeowners with mortgages or business owners who have taken out loans, may also suffer from the central bank’s decision to double interest rates, Kuskra said.
The central bank has ordered other measures to help banks cope with the crisis by pouring more money into the financial system and easing restrictions on banking operations. At the same time, he temporarily banned non-residents from selling government bonds to ease pressure on the ruble from panicked foreign investors trying to make money from such investments.
On Monday early Monday, the ruble fell about 30% against the US dollar, but steady after a central bank move. It previously traded at a record low of 105.27 per dollar, up from about 84 per dollar on Friday at the end before recovering to 94.43.
Sanctions announced last week have brought the Russian currency to its lowest level against the dollar in history.
Sweet made from New York, and McHugh from Frankfurt, Germany. AP reporters Kelvin Chan from London and Daria Litvinova in Moscow contributed.
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