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(London Comprehensive News)In Russia's sanctions, sanctions on the central bank of Russia are the most destructive; some analysts point out that if it is handled properly, this may force Russia to stop war.
Researcher Michael Bernstam, a researcher at the Hoover Research Institute of Stanford University, commented at the Financial Times that, like other central banks in the world, the Russian central bank is the last loan of the local currency of commercial banks in the country (LENDER of Last Resort) is also the last lender of their foreign exchange.The foreign exchange reserves of the Russian Bank of Russia support the exchange rate and currency value of rubles, ensure the stability of the Russian banking system and deposit, prevent Russian banks from crowding, guarantee foreign debt of state -owned and private enterprises, and use it to manage sovereign wealth funds.The current Western sanctions have hit these foundations of the Russian economy, and the reason for this is all of the digitalization of international finance.
In the past, most of the foreign exchange reserves consisted of real gold and silver, including a large number of US dollar cash and government bonds.By the 21st century, foreign exchange reserves have generally converted to electronic data and recorded on the electronic ledger of the central banks of various countries, which means that the ownership and control of foreign exchange reserves have been separated.During the peaceful period, foreign exchange reserves are the source of economic power. However, at the moment of hostile to others, foreign exchange reserves are indeed a handle.
After Russia invaded Ukraine at the end of February, Western countries have frozen the assets of the Russian Central Bank, not allowed to use, and prohibit their respective financial institutions from the Russian central bank, the Russian National Fortune Fund and the Ministry of Russia.Russia cannot sell securities or withdraw cash from Western banks to cope with the impact of Western sanctions.
Russia has been trying to reduce financial connections with the West in recent years, including reducing dependence on the US dollar and other commonly used reserve currencies.A report issued by the International Financial Association in February states that Russia has greatly reduced its holdings of France, the United States and Germany, and instead holds more Chinese and Japanese assets and gold.
The US dollar reserves on Russia may not be able to use it
Despite this, this Western sanctions still have a great impact on the Russian economy.The International Financial Association estimates that 40%to 50%of Russia's $ 643.2 billion reserves may not be used.Russian central bank governor Nabi Urina admitted that when the ruble collapsed last Monday, she was unable to intervene because of the sanctions of the Russian central bank.
In order to protect the country's economy and market, Russia has adopted emergency measures such as capital control and doubled interest rates, but these measures are not conducive to economic growth.
JP Morgan Economist issued a report last week that the West sanctions against Russia "destroying two pillars that promote stability, namely the central bank's foreign exchange reserves and Russia's frequent project surplus."Now it seems that the Russian economy is moving towards a serious decline, and the severity may reach, even more than the economic landslide after the debt defaults of the country in 1998.
However, financial impact may be less than that at the time.In the short term, the decline of rubles is less than 1998.Today, Russia has a stronger ability to avoid debt defaults, especially if other countries continue to impose sanctions on Russia's energy exports.
Russia's natural resource industry has not been directly sanctions, but traders, banks, and shipowners are trying to avoid doing business with Russia to avoid sanctions.They are worried that future sanctions will cover commodities, and doing business with the Putin government may also damage their reputation.
Bernstein believes that Western economic sanctions will weaken Russia's military operations, but may not be enough to stop war.He pointed out that the West can try to reach an agreement with the Russian government to "change money with money", such as thawing Russian assets in order in exchange for Russia to promise to withdraw troops from Ukraine and never use nuclear weapons.
