How western sanctions will affect the daily life of russians

The new set of economic and financial sanctions announced on Saturday (February 26th) is likely to have serious consequences this time on the Russian banking system and thus on the daily life of Russians.. “Restricting the Russian central bank’s access to its own assets, combined with a selective ban on Swift, is likely to trigger a large-scale macro-financial crisis in Russia”, Underlines Gilles Möec, chief economist at AXA Investment Managers.

A banking and financial system under glass

The hardest and most unexpected blow of the new sanctions was the attack on Russia’s central bank, a major first. The goal is to limit the central bank’s access to its own reserves of $650 billion, more than half of which are in dollars, euros and sterling. This financial firepower has allowed the central bank to support the ruble, which it has hitherto no longer been able to.

In fact, Russia’s central bank stopped its currency interventions due to Western sanctions. And the government is considering limiting forced sales of 80% of export revenues and capital exports by non-residents.

This unprecedented sanction against the central bank has been combined with the disconnection of some Russian banks from the Swift interbank messaging service, according to a selective approach that should not punish (too much) Russia’s gas and oil exports. It is possible to implement alternative solutions to Swift, as their implementation will necessarily take a lot of time, especially for secure exchanges. Swift’s strength really rests on the confidence that all banks place in this messaging service. Even the Kremlin agreed on Monday “The economic reality has changed significantly,” he said.

Banking risk

Even before the announcement of new retaliatory measures from the European Union, the main banks tried to reassure as of Saturday: “ “It’s very important to us that millions of Russian families have confidence in the future, now and always, knowing that their funds are safe, regardless of the bank that serves them.” therefore underlined the joint press release of Sberbank, VTB, Alfa Bank and Otkritie Bank. Rosbank, a wholly owned subsidiary of Societe Generale, is not affected by the sanctions and can therefore continue to benefit from the liquidity of the group.

As of Sunday, news agencies still reported long queues in front of distributors or bank tellers to withdraw money. On the other hand, there are no problems with withdrawing money or paying in rubles with the Mir card, which is very widely distributed among the population, since Russia has its own domestic payment system. Officially, Russian banks exclude the risk of any cash restrictions in foreign currency or rubles.

Sberbank in Europe went bankrupt

For the European subsidiaries of Russian banks, the situation is more tense. This is especially true for Sberbank Europe, which is the Russian State based in Austria and the majority shareholder of the parent company and its subsidiaries and subsidiaries in Croatia and Slovenia.

The European Central Bank said on Monday that the bank would face large cash withdrawals and was in “probable bankruptcy”. However, individual customers benefit from deposit protection of up to 100,000 Euros according to European regulations. As a result, the Austrian regulator ordered the bank not to make any further transfers, withdrawals or other transactions until March 2.

Hyperinflation risk

Even if the Russian people have learned to live on very few goods in recent years, the fall of the ruble will of course make imported goods significantly more expensive. Russia is also largely self-sufficient in many agricultural products and is even a net exporter of grain and pork. Meanwhile, the Russian central bank will have to print more money to finance government spending and the cost of the war.

Still, the fall of the ruble could support the rise of a dollar (or euro)-based informal economy, especially if the government is tempted to set a mandatory exchange rate. Households will then tend to spend their rubles as quickly as possible while protecting their currency, further increasing inflation.

“The average Russian will get poorer but will know that the root of the problem is Ukrainian aggression. People can revolt. This seems unlikely, as it seemed unlikely before the fall of the Berlin Wall in Eastern Europe in the 1980s.” Ostrum AM economist Philippe Waechter highlights it on his blog. For the economist, sanctions on the banking system and central bank are likely to destabilize the economy, especially Russian society..

“Putin’s allusion to nuclear weapons is an admission of weakness”, says a bond manager.

Russian oligarchs hit the wallet

This was the first target that British Prime Minister Boris Johnson was aiming for. The city was regularly criticized for its indifference to the great Russian fortunes who liked to hoard their treasures in mansions in London.

Threats of asset freezes or confiscation of real estate in the UK, although the exercise promises to be sensitive, ownership of these assets is often concealed through a network of trusts located in tax havens. However, British authorities announced this afternoon that the assets of all Russian banks on their territory will be frozen.

Meanwhile, according to Forbes magazine, the 116 oligarchs targeted by the sanctions would have lost more than $125 billion in a matter of days as the value of assets plummeted, even though their fortunes had collapsed in recent months. . . .

Some oligarchs even let a (small) dissonant voice be heard. Oleg Deripaska, founder of aluminum giant Rusal, called for an end to this. “state capitalism” In Russia, saying what they expect from the Russian government “descriptions” on economic policy in the face of the crisis. Another oligarch, Oleg Tinkov, founder of the online bank Tinkoff, which is very successful in Russia, comes to judgment “unthinkable and unacceptable” not including “Innocent people die every day” in Ukraine.

Finally, Russian billionaire Mikhail Fridman condemned the war in Ukraine in an open letter to the employees of the investment fund LetterOne, while Roman Abramovich, the owner of the famous Chelsea football club (withdrawn) who is known to be close to Vladimir Putin, was contacted by Ukraine to assist in the negotiations.