MAGIC BULLET: Unprecedented Western sanctions strangling Russian economy.
As Russian President Vladimir Putin wages war against Ukraine, his country’s economy has begun to collapse under the weight of unprecedented penalties from the Biden administration, United Kingdom, European Union and other major economic players.
“Everyone in the economic sphere, the banking sphere, knows we’re in new territory here—a coordinated shutdown of a country’s economy with the strongest arrow being in the heart of the banking sector,” said George Lopez, expert on economic sanctions at University of Notre Dame’s Keough School of Global Affairs.
The value of the ruble plunged Monday after the U.S and its allies took action to cut the Russian government off from roughly $600 billion in reserves held by the Central Bank of Russia and further cut Russia’s ties to the global financial system.
The Western bloc banned most transactions with the Russian central bank — along with Russia’s finance ministry and foreign investment fund — blocking Putin from funds he stowed away for years to cushion the blow of sanctions. The sanctions also cut off Russian access to the U.S. dollar, the linchpin of the global financial system, as its value climbs amid global tumult.
The U.S. and EU are also barring certain Russian banks from access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a messaging system used by banks to conduct transactions.
Roughly $300 billion of Russia’s reserves are now locked away from Putin in the U.S., Europe, and other allied countries. While Russia still holds billions of dollars worth of gold within its borders, experts say Moscow will find few willing buyers with its banks under their own crushing sanctions.
Prediction: China is carefully watching this and will work hard to insulate itself from similar actions in the future.