Since the announcement of massive economic sanctions against Russia in response to the invasion of Ukraine, Russians have been living in a scenario that was unthinkable just a few weeks ago.
(RE)read: Western sanctions against Russia: a strategy doomed to fail?
Kremlin spokesman admits Russian economy is suffering “serious blow”and what it “honesty” is in the game.
The European Union cut off seven Russian banks from the Swift international financial system, but took care to keep two large financial institutions closely connected with the hydrocarbon sector due to the heavy dependence of a number of European states on Russian gas.
The measure was published on 2 March in the Official Journal of the EU.
The Swift exemption targets VTB, the second largest bank in Russia, as well as Otkritie Bank, Novikombank (industry finance), Promsvyazbank, Bank of Russia, Sovcombank and VEB (regime development bank).
These banking institutions, selected in “Close cooperation” with London and Washington, “primarily concerned about funding the war effort” from Moscow to Ukraine, the European official said, noting that about a quarter of the volume of the Russian banking system falls under the measure.
The sanction does not affect either Sberbank, the country’s leading bank, or Gazprombank, the financial arm of the hydrocarbon giant, through which most of the payments for Russian gas and oil supplies to the European Union pass.
“Atomic weapons” of Swift’s exclusion
The Swift exception is represented as “atomic weapon” Financial: This secure messaging platform enables transactions such as the transit of payment orders and funds transfer orders between banks.
About 300 Russian banks and institutions use Swift services.
But Moscow has created an alternative financial infrastructure for transfers through a system called SPFS, payments (cards “peace”which in Russian means “Mir” or “Mir”, and which are intended to be the equivalent of Visa and Mastercard) and a rating (Akra agency).
Target banks will be able to continue to exchange with foreign banks using non-Swift means (e-mail, faxes, etc.) but slower, much less secure and more expensive, in particular for very large amounts.
The fall of the ruble
But the consequences are already being felt by ordinary Russian citizens.
Their money lost over a third of its currency value in a matter of days. Their planes are only accepted in a few countries. Their jobs, their salaries, their loans… everything seems to be at stake.
(RE)see: Russia: Faced with Ruble Fall, Russians Worry About Their Future
Speaker of the Upper House of Parliament Valentina Matviyenko called the sanctions “unprecedented”invited “connect everyone’s brains, analyze everything that interferes” the business world, urging us not to give in “panic”.
The prime minister takes up Russian recipes twenty years ago: import substitution with local products and diversification of income sources.
These statements seem very insignificant in the face of the possibility of a cataclysm. The Moscow Exchange has been closed since Monday, February 28, and authorities are tightening restrictions to limit damage.
The Central Bank announced measures prohibiting foreigners from selling their Russian shares and withdrawing funds from the Russian financial market due to the outflow of foreign investment. It is also forbidden to leave Russia with more than $10,000 in cash.
The Ministry of Finance called for the abolition of VAT on the purchase of gold by individuals, suggesting that they prefer it to purchases of foreign currency.
Sberbank, Russia’s leading bank that was very profitable just a few weeks ago, announced on March 2 that it was pulling out of the European market, causing a 95% drop in the value of its shares on the London Stock Exchange.
Sanctioned Russian companies and oligarchs are cascading their operations down, while foreign companies are rushing to announce they are ending their services in Russia.
Hydrocarbon heavyweights such as Shell and BP have announced they are pulling out of the country they have invested billions in.
Hundreds of thousands of jobs, perhaps more, are at stake for Russians working for foreign companies, who also worry about paying their wages as Russian banks’ foreign ties are on the verge of breaking down.
Russians have been tasting the fruits of capitalism and an internationally integrated economy for about twenty years now.
Far from the ruins of the USSR, the middle class is accustomed to foreign travel, restaurants and shops. Vladimir Putin’s enduring popularity is largely due to the economic stability that has been established since he came to the Kremlin in 2000.
Revenue has declined since 2014
Since the adoption of sanctions in 2014, the income of Russians has decreased by 10%, according to Alfa-Bank economist Natalia Orlova. Russia has not experienced such a long period of impoverishment since the 1990s.
If the state has accumulated solid reserves to withstand the sanctions imposed by the international community in 2014 after the annexation of the Crimean peninsula, then this is not the case for Russian citizens, whose purchasing power has declined in eight years in a sluggish economy. According to a survey conducted by the Levada Institute in 2021, many finance their material well-being with a loan, and almost two-thirds have no savings.
“If you have loans or other debts to banks, you must quickly repay them. The crisis increases the risk of losing sources of income”recommended their financial adviser Sergei Leonidov in an interview with RIA Novosti.