Moscow – Ordinary Russians faced the prospect of higher prices and foreign travel as Western sanctions against invading Ukraine sent the rouble plummeting, leading worried depositors to line up at banks and ATMs on Monday in a country that has seen more than one currency disaster in the post-Soviet era.
The Russian currency plunged around 30% against the US dollar after Western countries announced unprecedented measures to block some Russian banks from the international payment system SWIFT and to restrict Russia’s use of its huge reserves of foreign currency. The exchange rate then regained ground after swift action by the Russian central bank.
But economic pressure tightened as the United States beefed up sanctions aimed at tying up all Russian central bank assets in the United States or held by Americans. The Biden administration estimated the move could impact “hundreds of billions of dollars” in Russian funding.
US officials said Germany, France, the UK, Italy, Japan, the European Union and others would join the Russian central bank’s target.
“We are in uncharted territory to launch all of these nuclear sanctions options against Russia at the same time this weekend,” said Elina Ribakova, deputy chief economist at the Institute of International Finance, a banking trade group. once like this will have a very significant effect.”
Russians fearing the sanctions could deal a crippling blow to the economy have been flocking to banks and ATMs for days, with reports on social media of long queues and sold-out machines. People in some central European countries have also rushed to withdraw money from branches of Russian state-owned bank Sberbank after the Russian parent bank was hit by international sanctions.
Moscow’s public transport department warned residents of the city over the weekend that they could face problems with Apple Pay, Google Pay and Samsung Pay paying fares because VTB, another Russian bank making the subject to sanctions, manages card payments on the Moscow metro, buses and trams.
In the automotive sector, several automakers have reportedly halted product shipments to the country and sales there amid the Ukrainian invasion.
Swedish automaker Volvo Cars said on Monday it had suspended shipments of cars to the Russian market until further notice, Reuters reported. Swedish truck maker AB Volvo has also halted production and sales in Russia due to the situation in Ukraine. And German truckmaker Daimler Truck is freezing its business operations in Russia, Reuters also reported.
Volkswagen has also temporarily suspended deliveries of cars already in Russia to local dealerships, the RIA news agency reported.
General Motors Co., which does not produce vehicles in Russia, also said on Monday it had halted vehicle exports to the country until further notice. GM exports to Russia the Cadillac XT4, XT5, XT6, Escalade, Chevrolet Traverse and Tahoe manufactured in the United States, as well as the Chevrolet Trailblazer manufactured in South Korea. GM’s total annual sales in Russia are approximately 3,000 vehicles.
By comparison, GM sold 2.2 million vehicles in the United States last year.
“Our thoughts are with the people of Ukraine at this time,” GM spokesman George Svigos said in a statement. “The loss of life is a tragedy and our overriding concern is the safety of people in the area.”
Although North American auto operations depend on a minimal amount of supply from Russia or Ukraine, even a small impact could greatly affect production here. The automotive supply chain has already been weakened by the pandemic, leading to supply shortages that have cost millions of units in production and billions of dollars in revenue.
“If it lasts long enough, you still have an impact,” said Mark Wakefield, global co-head of automotive and industrial practice at AlixPartners LLP, noting that European auto production is more at risk than North America.
But if Russia, for example, decided to stop sending one of the raw materials it supplies, like palladium, for example, “it would really hurt,” Wakefield said. “It wouldn’t hurt immediately, but once you run out of stock it would hurt because they’re just such a big supplier of some of these materials.”
Russia’s Nornickel is the world’s largest supplier of palladium, which automakers use for catalytic converters, and prices for the material rose 5.1% on Monday after Russia was hit with new sanctions from the Western countries, Reuters reported.
Along with supply chain disruptions, automakers and their suppliers also need to watch out for potential cyberattacks that could affect production. Toyota Motor Corp. had to suspend all factory operations in Japan on Tuesday, Reuters reported, after a supplier of plastic parts and electronic components was hit by a suspected cyberattack. Although no information was provided on the causes of the attack, it happened after Japan supported Ukraine along with other Western countries.
Entrepreneur Vladimir Vyaselov found that flights were blocked for his trip abroad on a student visa. He was considering driving to another country and flying from there.
“I have disagreed with the decisions of all authorities for a very long time and that is why I store all my money only in foreign currency, and I am skeptical of Sberbank, VTB, of national banks in general,” he said. he declares. “I can’t say that I was ready (for sanctions) but I was as ready as possible as a citizen of the Russian Federation.”
A sharp devaluation of the ruble would mean a drop in the standard of living for the average Russian, economists and analysts have said. Russians still depend on a slew of imported goods, and the prices of those items are likely to skyrocket, like iPhones and PlayStations. Foreign travel would become more expensive as their rubles would buy less foreign currency abroad. And deeper economic turmoil will arise in the coming weeks if price shocks and supply chain issues cause Russian factories to shut down due to lower demand.
“It’s going to ripple through their economy very quickly,” said David Feldman, an economics professor at William & Mary in Virginia. “Anything imported is going to see the local cost of currency skyrocket. The only way to stop it will be heavy subsidies.”
Russia has decided to produce many goods on its territory, including most of its food, to protect the economy from sanctions, said Tyler Kustra, assistant professor of politics and international relations at the University of Nottingham. He expected that some fruits, for example, which cannot be grown in Russia “will suddenly be much more expensive”.
Electronics will be a sore spot, with computers and cellphones having to be imported and costs rising, said Kustra, who studies economic sanctions. Even foreign services like Netflix might cost more, although such a company might lower its prices.
The auto sector, a major employer, “is being hit very quickly by the ban on the import of microchips and other parts,” said Chris Weafer, managing director of Macro-Advisory, a Eurasia strategy consultancy.
As long as even a few Russian banks were spared the SWIFT cut, he said, Russia would still be able to continue exporting, post modest growth this year and earn enough to subsidize or bail out big companies. or employers.
“So it really depends critically on whether SWIFT stays open or whether that last channel is closed,” Weafer said.
After the West sanctioned Russia for seizing Ukraine’s Crimean Peninsula in 2014, Russia’s central bank cleaned up weak banks and braced for possible tougher sanctions.
“There is therefore no need to fear an immediate crisis or collapse” this year, he said. “It is clear that if these sanctions become tougher and extend over several years, the situation will clearly deteriorate during this period.”
The fall of the ruble evoked bad memories of previous crises. The currency lost much of its value in the early 1990s after the end of the Soviet Union, with inflation and loss of value leading to the government removing three zeros from ruble banknotes in 1997. Then came a further drop after a 1998 financial crisis in which many depositors lost their savings and another drop in 2014 due to falling oil prices and sanctions against Crimea.
On Monday, Russia’s central bank raised its key rate sharply from 9.5% to 20% in a desperate attempt to prop up the ruble and stave off a run on the banks. He also said the Moscow Stock Exchange would remain closed.
European officials have said that at least half of Russia’s estimated $640 billion hard currency stack, some of which is held outside Russia, would be crippled. This has significantly increased the pressure on the Russian currency by undermining the ability of financial authorities to support it by using reserves to buy rubles.
Kremlin spokesman Dmitry Peskov called the sanctions “heavy” but said “Russia has the potential to repair the damage.”
The measures taken to support the ruble are themselves painful because rising interest rates can dampen growth by making it more expensive for companies to obtain credit. Russians who have borrowed money, such as homeowners with mortgages or business owners who have taken out loans, could also be hit by doubled interest rates, experts said.
The ruble fell around 30% against the US dollar early on Monday, but stabilized after the central bank’s decision. Earlier, it was trading at a record high of 105.27 to the dollar, down from around 84 to the dollar on Friday night, before climbing back to 94.60.
McHugh contributed from Frankfurt, Germany. AP reporters Kelvin Chan in London, Ken Sweet in New York and Paul Wiseman in Washington contributed. Detroit News reporter Kalea Hall contributed.