With harsh economic sanctions and a ban on Russian flights over EU and US territory, the West is trying to isolate Russia in response to the Russian special operation in Ukraine.
Russian President Vladimir Putin does not intend to stand by and watch but instead is responding to the sanctions.
He has already responded to the airline restrictions in a similar way, while the blocking of 7 Russian banks by SWIFT is forcing the Kremlin to find other ways to rein in the country’s economy.
At a time when the West is trying to shut down Russia economically, it allows Russian oil and gas to flow both to Europe and to other markets which allows Putin to rely heavily on it.
Western officials, experts on economic sanctions, quoted by the French news agency Afp, argue that Putin is expected to find outlets for the West’s economic stranglehold.
- Transfer of funds through smaller banks and bank accounts of oligarchs whose names have not yet been included in the sanctions.
- Use of China’s Cross-border Interbank Payment System (CIPs) by making transactions in Yuan. Analysts at China Securities Co said that several Russian banks are already linked to CIPs.
- At the same time, the Central Bank of Russia is turning again after a decade to the gold market as it is not affected by the sanctions. It should be noted that Russia has huge gold reserves which it has been accumulating intensively in recent years
- Turn to cryptocurrencies to transfer wealth and make transactions in and out of the country with companies worldwide.
Last month, Russia and China signed a 30-year agreement that will allow Russia to direct large quantities of gas to China, although the pipelines to transport it will be completed in at least the next three years.
In addition, China announced last week that it will allow wheat imports from all parts of Russia for the first time.
The Russian SPFS
Since 2014 Russia has tried to fortify its economy against the possibility of further Western sanctions.
As part of this, it has increased its trade relations with China, while digital payments between the two countries have increased sharply and Russia’s central bank has invested in significant Chinese assets, reducing its exposure to the US and Europe.
At the same time, it created its own local alternative, the SPFS, which the Russian central bank created after the invasion of Crimea and the imposition of limited economic sanctions on Moscow.
However, only 20 foreign banks are currently participating in it, which does not make it a powerful way of international trade.
Cryptocurrencies As a Way Out
Cryptocurrencies will be Putin’s next alternative. As David Szakonyi, a professor of political science at George Washington University, believes, Russia will inevitably be driven to an increased reliance on cryptocurrencies to support its economic transactions, although he argues “it is unlikely to serve as a substitute for corporate transactions for a long time.”
A White House official revealed that “as almost 80% of Russia’s financial transactions have been in dollars [to date], the US Treasury Department is stepping up its efforts to ‘aggressively combat’ Russia’s use of cryptocurrencies that are not subject to sanctions.
However, as reported, it is possible that in the near future the Biden administration may impose sanctions on the exchange of cryptocurrencies in addition to energy-related sanctions.
Already the US has imposed sanctions on Russia’s SUEX.io and 25 affiliated cryptocurrency firms for allegedly assisting “criminal organizations” in money laundering.
Surprise Rise For The Ruble
The ruble recovered almost all of its large losses yesterday, while broader currency markets were also relatively calm amid the Ukrainian crisis, with the dollar retreating slightly.
The Russian currency was trading at 93.4 rubles per dollar having covered almost all of yesterday’s fall, helped by the central bank’s emergency hike in the key interest rate after the exchange rate fell to a record low of 120 rubles per dollar.