As sanctions force people into panic, the Russian economy spirals into a deeper crisis.

After the ruble fell to its lowest point against the dollar in the history of the world, the West has intensified fears of an economic recession by imposing new sanctions on Russia.

As sanctions force people into panic, the Russian economy spirals into a deeper crisis.

Widening Western sanctions have roiled Russia's economy Monday, causing its currency, the ruble to plummet to around 30% against the U.S. Dollar. Fearful of rising inflation, Russians waited in line for hours at ATMs.

As he presided over a meeting of top officials about the economic crisis, the volatile situation that was emerging in the wake of Russian president Vladimir Putin's invasion of Ukraine caused his country to close its stock exchange Monday.

In an emergency move to protect the ruble's currency, the Russian central bank raised interest rates from 9.5% to 20%. The inflation rate stood at 8.7 percent in January , before Russia's military attack on Ukraine. This was its highest level since 2016 .

Dmitry Peskov, a Kremlin spokesperson, described the Western sanctions that include blocking certain Russian banks from the SWIFT international payments system and restricting Russia’s use of its vast foreign currency reserves as "heavy." However, he argued Monday that Russia has the ability to repair the damage.

However, ordinary Russians remain anxious about the prospect of an economic downturn.

Social media posts over the weekend showed lines running along streets, with Russians trying to withdraw as much foreign currency from ATMs as possible.

CNBC reported that Sberbank's European subsidiary, Russia's biggest bank, has seen "significant outflows" of deposits.

Last time the country faced a cash crisis was in 2014. Oil prices plummeted amid turmoil caused by Western sanctions. Russia's central bank stated last week that it will increase cash supplies to ATMs in anticipation for increased demand.

To avoid a worsening crisis, some branches of banks could close while others could declare a bank holiday.

Monday's U.S. Department of the Treasury imposed additional sanctions on "key sources of Russia’s wealth", which would impair any assets of the Russian central banking in the United States. The department sanctioned the Russian Direct Investment Fund (worth approximately $10 billion) and Kirill Dmitriev its CEO. This is a key Russian sovereign wealth bank.

According to the Biden administration, increased sanctions could have a negative impact on Russian funding in the amount of "hundreds upon billions of dollars".

Biden administration officials stated that Germany, France and other countries will join the United States to target the Russian central bank.

The West's retaliation against Putin's actions is "unprecedented" and severe. It shows how the U.S. and its allied countries are more forceful than their "tepid” response in 2014. Margarita Balmaceda, professor of diplomacy at Seton Hall University, and author of " Russian Energy Chains," said Margarita Balmaceda.

Balmaceda stated that "they're sorely needed" if Ukraine is to be saved and our European allies are saved because Russia will not stop supporting Ukraine.

Balmaceda said that Russia's economic crisis will be influenced by how its oligarchs react over the next few days. He also asked if they could pressure Putin to back off his sanctions if their businesses, which include oil, natural gases, and aluminum, are taken a severe and prolonged hit.

Balmaceda stated that sanctions are now hitting the middle and upper-middle classes, as well as those who travel. It's the oligarchs and key players who will feel the heat that is important.

Economists and analysts believe that a sharp decline in the ruble will result in a decrease of the standard of living for average Russians. These sanctions will not only affect Russia's elite but also average Russian families, Balmaceda stated. They are likely to impact their ability to afford essential items like food and clothing and rely on products that are unofficially priced in dollars.

Russia will need to help support the declining sectors, banks, and economies. However, without hard currencies such as the U.S. dollars and the euro they might have to print more rubles.

Economists warn that this move could lead to hyperinflation. Last week's sanctions had already brought the Russian currency to the lowest level ever against the dollar.

Global stocks opened lower Monday. The Dow Jones Industrial Average lost 300 points to begin the week.

"We may have witnessed the sharpest depreciation in the ruble since modern history, but it is not a bottom," said Alex Kuptsikevich (FxPro senior market analyst , according to CNBC).


 

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