The United States and Canada on Monday banned all transactions with Russia’s central bank, effective immediately, in an unprecedented sanction meant to punish the country for its invasion of Ukraine.
The moves, on top of penalties imposed earlier and those taken by allies in Europe, will make it harder for the Russian central bank to use its vast stockpile of hard currency to protect the ruble, the value of which collapsed against the dollar and euro.
Transactions to support the ruble, “will no longer be possible and fortress Russia will be exposed,” a senior US administration official told reporters.
Canadian Finance Minister Chrystia Freeland said the ban is meant “to ensure that Russia’s invasion of Ukraine will be a strategic failure.”
“Canada is firmly on the side of the heroic resistance of the people of Ukraine and we will continue to take further action to ensure President (Vladimir) Putin does not succeed,” she said in a statement.
The United States also sanctioned Russia’s finance ministry and another sovereign wealth fund, but continues to exempt “certain energy-related transactions” from the bans targeting the central bank, Treasury said.
The US official said the package of coordinated sanctions will create a “vicious feedback loop,” and Moscow “will be forced to deplete their domestic rainy day fund far more quickly, experience a weakening of their currency, making funding their war of choice much more expensive.”
“Inflation is very likely to spike. Purchasing power is likely to plummet. Investment is likely to plummet,” the official said.
In the wake of the sanctions imposed by Western powers in response to the 2014 invasion of Crimea, Moscow had built up $630 billion in reserves of foreign currency and gold to buffer Russia, but the latest penalties, which include cutting the country’s banks off from the SWIFT system critical to transferring funds between banks, could cripple the economy.
Edward Fishman, a nonresident senior fellow at the Atlantic Council who studies sanctions, said the actions are “without precedent” because they go after all the sources of wealth Moscow could have tapped to bolster its economy.
“As a result, the specific consequences aren’t easy to predict with a high level of confidence. But the consequences will certainly be far-reaching. And it took a whole lot of courage for the US and Europe to take this step,” he said on Twitter.
Researchers at the Institute of International Finance (IIF) predicted the sanctions could force Russia to institute capital controls or declare a bank holiday as citizens rush to withdraw savings.
