At the bottom of the page on this forum, I'm currently getting this ad with featured articles
I'll quote one of them. 'This war will destroy us'.
War will bury the Russians
What will happen to the ruble and the Russian economy as a whole? Answered by Sergey Guriev
On the night of February 27, Western countries announced the introduction of another package of sanctions. First of all, this is the long-discussed disconnection from SWIFT and the freezing of assets of the Central Bank of the Russian Federation in the European Union, the USA and Canada. Now the Russian Central Bank will not be able to use its international reserves to maintain the stability of the ruble. Meduza special correspondent Anastasia Yakoreva spoke with economist Sergei Guriev about how this will change the Russian economy.
— The EU, the US and Canada announced the freezing of the reserves of the Central Bank. It seems that this scared everyone more than the disconnection from SWIFT. How hard will it hit us?
- This is very important news, absolutely unexpected, no one knew that this was possible. The presence of reserves has been one of the key pillars of macroeconomic stability - what will happen tomorrow in the foreign exchange market is difficult to predict. Just because it never happened. We are entering a situation in which it is difficult to predict how the ruble will behave. Maybe tomorrow there will be no auction. Maybe there will be panic. But this is a huge blow to the ruble. This can be said with absolute certainty.
— Does the fact in which country the Central Bank reserves are actually stored now affect this?
— Yes, it does. Now some say: it's okay, the Central Bank still has gold and yuan, they can definitely be sold. It's also a non-obvious moment. Because American sanctions are a very serious mechanism, and Chinese banks will not necessarily want to help the Russian Central Bank, because America can impose serious punishment on them for this. It's happened before, it's not a theory. For example, with the French bank BNP Paribas, which violated US sanctions and was forced to pay a multi-billion dollar fine. I can't imagine that Chinese banks would be willing to help Russia at that cost.
The situation is completely unclear. Will it be possible to realize the gold tens, as [Mikhail] Bulgakov would say? It is not entirely clear who would want to buy this gold [from the Central Bank's reserves] at the risk of falling under US sanctions. America may prohibit Chinese banks from buying Russian gold and exchanging the yuan that the Central Bank has for dollars. And the Russian Central Bank, of course, needs dollars and euros, because most of the imports of the Russian economy are still Europe. To buy pills, technology, food, you need dollars, not yuan.
Whether Chinese banks can help Russia cope with the shortage of dollars or euros is completely unclear. I wouldn't bet on it. I think that, most likely, Chinese banks will say: “Sorry, we are great friends and we think that you are great fellows, but because of American sanctions we will not be able to cooperate with you.”
- Will it be similar to some of the crises that Russia has already gone through?
- Unknown. It will be harder than in 2014, because then there were just reserves - and the Central Bank knew what it could and what it could not. Basically, oil prices are high today. But it is not clear whether Russian oil exporters will be able to sell this oil and get dollars, because in theory they will receive dollars, but in practice: will they be able to transfer them to Russia and sell them somewhere?
All this becomes very complicated. No one knows how the sanctions will work. This happened with Iran and North Korea, but Russia is not Iran or North Korea, it is a much more important player. How this will work with Russia, no one knows yet.
- Did Iran and North Korea also freeze their reserves?
- They froze, but these were completely different quantities, and they did not count on them. If you had asked me on Friday [February 25], I would have told you: the situation is difficult, Russia will be cut off from technology, Russia will not have economic growth, but Russia will not have a currency crisis, because Russia has huge foreign exchange reserves. Today I can’t say anything, because this has never happened before.
Is a scenario realistic in which Russians will begin to withdraw dollar savings?
Yes, absolutely real. This is how they will be removed. You will be told: "You have dollars, but you do not have the right to withdraw them, you can convert them into rubles at the rate set by the state." Such a scenario is quite possible. The scenario when import will be sharply reduced is real. It turns out that Russian citizens do not have enough dollars or the dollar is very expensive and Russians cannot afford to buy medicines because they cannot afford them.
Are there any examples of such sanctions working?
- It works, of course. I will give you an example of Iran. Iran wanted to build its own nuclear bomb, sanctions were imposed, Iran went to negotiations and made a deal - negotiations. And until the arrival of Donald Trump, this deal was supported.
Most likely, such harsh sanctions will lead to the fact that Vladimir Putin will have to start negotiations on the withdrawal of troops from Ukraine. And the dissatisfaction of the citizens will push him to this. I would not put my money on the fact that tomorrow grateful citizens will come out with posters: “Thank you, Vladimir Vladimirovich, for the ruble is much cheaper than last week. We support the war against the brotherly people." There will be no such rallies tomorrow. Sooner or later he will have to negotiate.
- If Putin goes to negotiations and withdraws troops, what will happen to the Russian economy?
- The main question is which sanctions will be lifted. But I can't tell you anything good. Because the very precedent that happened suggests that something is possible in Russia that was not expected before. In this sense, I am not sure that all sanctions will be lifted, and most importantly, I am not sure that there will be a sharp influx of investments, because Western investors will think: “I am now investing in Russia, and then Vladimir Putin will come up with something new, and I will lose everything.
- Are there options for tightening existing sanctions?
— I can tell you a lot of things, but I won’t, so that it doesn’t seem that I am suggesting some ideas to people who are imposing sanctions against Russia. I can say one thing: an embargo on the export of Russian oil may be introduced. If you had asked me two days ago, I would have said: this is impossible. Now we see that everything is possible.
- When can this happen and what will replace it?
“It will be replaced by the expansion of shale oil production in America. Vladimir Putin will try to sell Russian oil to China and simply get a lower price for it. But I don't think it will be needed. I think that there are already so many sanctions today that Vladimir Putin has many incentives to negotiate. Although I wouldn't predict anything.
- Disabling SWIFT against this background, apparently, is lost?
— SWIFT is an important symbolic story. Because everyone was talking about disabling SWIFT as a key step, a watershed. Everyone said it was impossible. And now it's possible. Although from my point of view, the sanctions against the Central Bank are much more painful than the shutdown of SWIFT, the shutdown itself shows that what was considered too scary yesterday is being discussed and implemented today.
- Another serious sanction is a ban on the export of high technologies to Russia. What will it lead to?
- Russia will not have prospects for technological development. Everything Russia wants to do in the technology field depends on cooperation with other countries. Russia is not alone in this. China also cannot do anything on its own. And America. iPhones are not made only in America. There is a simple fact: the most advanced microchips are made in Taiwan. Taiwan has joined the sanctions. This means that the development of technology in Russia will stop.
- What did Putin count on when starting the war, knowing that we are so dependent on other countries?
- It is difficult to judge, but I probably thought that the West would not dare to impose such serious sanctions. Secondly, he believed that the war would be over very quickly and everyone would be confronted with this fact. Why impose sanctions if everything is already over? But it happened differently. Western leaders felt cheated, Western society - which is very important - saw that 1939 had come again, they know that 1940, 1941, 1945 are coming after 1939, and no one wants a new European war. And Western society demanded drastic measures from their governments.
Is the West risking something by imposing such sanctions? Russia can stop gas supplies?
- The West is ready for this, it is discussing it quite seriously. The West knows that it depends on gas less than Russia depends on gas supplies.
That is why today Vladimir Putin did not say that he would stop gas supplies and the Europeans would burn wood. He said: we have nuclear weapons. This is what everyone is afraid of. That is why Western soldiers will not fight on Ukrainian soil. However, we must remember the statement of the French Foreign Minister [Jean-Yves] Le Drian, who said: "Do not forget that NATO is also a nuclear alliance." But the price of life in the West is very high, nobody wants a nuclear war. Everyone hopes that economic measures will be enough.
Do you think they will be enough?
- I think yes. I gave you the example of Iran. Of course, it is quite possible that Vladimir Putin will continue the war. But there is another important factor - the Ukrainian people continue to resist. Without his heroic defense of his country, economic sanctions would not have been enough.
- What can you advise ordinary Russians in this situation?
“War costs Russians dearly and will cost even more. The war must be stopped. That's what I can say. I live abroad and cannot give advice to my fellow citizens who live in Russia. But I admire the courage of those who publicly speak out against the war and go to anti-war rallies.
The article was written on the 28th of Feb and it looks like its author had already skipped across the border by that time.
Well the Chinese already told the Americans to beat it, and effectively the Indians did as well. The rouble fell but its value only halved so far, no more.
The reserves of the Central Bank being frozen is a major f-up of course. Doesn't look like Putin prepared adequately for this war either in the economic or the military sense, although I'd imagine Russia will pull through. The Chinese are already talking about buying up Russian stocks when the markets upon up again.
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