This article was originally published by Radio Free Europe/Radio Liberty and is reprinted with permission.
The United States has announced new sanctions that block Americans from executing any transactions with Russia’s central bank to punish Moscow for its unprovoked invasion of Ukraine, adding to a wave of measures that sent the ruble into a free fall and prompted Bank Rossia to more than double its key interest rate to 20 percent.
The fierce economic sanctions imposed by Washington on February 28 also bar transactions with Russia’s Finance Ministry and national wealth fund, according to a U.S. official, while the U.S. Treasury Department slapped sanctions on a key Russian sovereign wealth fund, the Russian Direct Investment Fund, its management company, and its chief executive, Kirill Dmitriev, who is considered a close ally of President Vladimir Putin.
“By further restricting these persons and entities from the U.S. financial system, the United States continues to demonstrate its unwavering commitment to support Ukraine, impose costs on Putin’s inner circle or those connected to Putin and his war of choice, and to prevent Putin’s regime from raising capital to fund its invasion of Ukraine and other priorities,” the Treasury said in a statement.
Russia invaded neighboring Ukraine on February 24, sparking outrage around the globe over the biggest assault on a European state since World War Two.
In reaction, the United States and many of its allies have launched financial sanctions to isolate Russia and cripple its economy.
The measures saw the ruble touch record lows in trading on February 28, while the central bank in Moscow shut the trading of Russian stocks to prevent wild swings. Russian stocks that trade in London plummeted by double digits.
The Kremlin defended the actions of its central bank and said Putin would meet with the finance minister and central bank governor to discuss ways to support the economy and currency.
The sanctions hinder the central bank’s ability to protect the ruble by selling its reserves denominated in G7 currencies. They also cut off select Russian financial institutions from the main global banking messaging system.
The ruble fell to as low as 118 to the U.S. dollar on February 28 from 83.7 on the previous trading day, according to Bloomberg data. It was trading at 105 as of 3 p.m. Central European Time.
Commercial banks were offering much lower rates online between 120 and 140 rubles to the dollar, according to Banki.ru.
The ruble has lost about 40 percent of its value since late October when Russia began to mass troops on Ukraine’s border.
Russian stocks trading in London and New York fell by as much as 68 percent.
Putin has focused on building up Russia’s foreign exchange and gold reserves to protect the economy ever since the West first began imposing sanctions in 2014 after his first invasion of Ukraine which saw him annex the Crimean Peninsula.
Russia’s central bank reserves stood at around $630 billion in February, vying with India for the fourth-largest stockpile in the world and giving rise to the expression “fortress Russia.”
The growth in reserves came at the expense of improving living standards, which have stagnated over the past eight years.
Russia had about 50 percent of its reserves denominated in the currencies of G7 countries as of last year with the remaining largely in gold and yuan-denominated assets.
The actions by the G7 nations will essentially freeze the assets of Russia’s central bank in those currencies wherever they are held, hampering its ability to defend the ruble and support banks, a senior U.S. administration official said.
“No country is sanctions proof,” the official said. “Fortress Russia will be exposed as a myth.”
A weaker ruble drives up the cost of imported goods — including food, clothing, computers and phones — leading to a spike in inflation and interest rates.
The announcement of the sanctions sparked fear over the weekend among Russians, who began lining up to withdraw money from ATMs and exchange rubles.
The central bank spent more than $1 billion last week to protect the ruble.
The RDIF is a sovereign wealth fund set up in 2011 to manage billions of dollars. It sought to co-invest in projects in Russia with international investors.
In sanctioning RDIF, the United States said it is “widely considered a slush fund for Putin and is emblematic of Russia’s broader kleptocracy.”
