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  • After the US sanctions on Russia, the response and financial market shock
  • A halt in trade does not mean a collapse of the banks or the economy?
  • The value of the rouble: little change so far, but uncertainty rising
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Economy
Can a ban on selling euros and dollars affect the Russian financial situation? Marga Santoso/Unsplash

After the US sanctions on Russia, the response and financial market shock

Washington announced on Wednesday the imposition of sanctions on the Moscow Exchange, Russia's main stock market and clearing house. The United Kingdom has also joined the decision. This is the latest in a wide-ranging Western financial punishment of Russia, as exchange rates are considered to be one of the main indicators of the stability of the Russian economy.

Shortly after this event, Russia's main stock exchange retaliated by suspending trading in dollars and euros. As the news spread like wildfire in the media and on social media, huge queues formed outside currency exchange offices and banks in Russia's major cities. The commotion was also captured in dozens of videos that spread rapidly on social networks.

While citizens are discussing the possibility that this situation could even lead to the collapse of Russian banks, experts are not convinced and are reassuring the public that ordinary people, the decisions taken by the US and the UK and, in retaliation, by Russia, will not have any major impact[1].

Russia suffers from sanctions. ELTA
Russia suffers from sanctions. ELTA

A halt in trade does not mean a collapse of the banks or the economy?

12 June Long queues have formed at currency exchanges after the Russian Central Bank suspended trading in dollars and euros because of new US sanctions against banks that facilitate sanctions-busting trade with Russia. Trading has been suspended on the Moscow Exchange since 13 June. At the same time, trading in roubles and other currencies on all other segments and instruments of the Moscow Exchange is proceeding as normal[2].

With the new sanctions in place, US companies, banks, and investors are no longer able to trade in dollars or euros on the Russian exchange. However, buying and selling currencies can still be done only on the over-the-counter market. Russia itself has suspended trading in dollars and euros, although Russians will continue to be able to trade outside the centralised Moscow Exchange.

The Moscow Exchange was created in 2011 by merging the Moscow Interbank Currency Exchange, which specialized in currency and securities trading, and the Russian Trading System, which traded Russian companies' shares in dollars.

The platform organizes exchange trading, i.e., matching buyers and sellers and ensuring the security of transactions between them. At the beginning of 2024, the number of people with brokerage accounts had surpassed 30 million, and the number of active clients reached more than 4 million.

Economist Grigory Bazhenov noted on Beware Media's Telegram channel that citizens will continue to be able to exchange currency within the limits set by the Central Bank, so this restriction is more relevant for companies involved in trading sectors, as ordinary people who have never traded on the exchange will hardly be affected.

Nevertheless, the changes will be felt. In the past, banks and other traders submitted various orders to the exchange to buy or sell currency. At the end of the trading session, at 19:20 Moscow time, the transactions were settled. Correspondent accounts in foreign banks were used for these settlements for each currency. For the Central Bank, currency trading on the Moscow Exchange was the indicator used to determine the official exchange rate between the dollar and the euro against the rouble.

This is now changing: trading will now occur outside the stock exchange due to the new sanctions. This means that Russian banks and companies can only sell and buy dollars and euros directly with Russian banks that still have open correspondent accounts in the United States and the European Union. There are still such banks in the country.

Only business customers may face more problems in the future because they used to be able to buy or sell the amounts they needed on the open market, where everything is safe and transparent, and now the bank will set the price for them at its own discretion, the exchange price will probably increase, and it won't be easy to check that it is in line with market conditions.

The US, the UK, and other countries ordered sanctions against Russia. Alexander Grey/Unsplash
The US, the UK, and other countries ordered sanctions against Russia. Alexander Grey/Unsplash

The value of the rouble: little change so far, but uncertainty rising

Of course, sanctions will affect markets and prices, and the spread between buying and selling rates will inevitably widen. On the other hand, some Russian financial analysts are even more positive about the situation, with no more than a 10% fall in the rouble expected.

At the moment, only an inertial shock is visible. Some Russian banks have immediately increased the rate at which they sell net dollars to 200 roubles per dollar. However, the largest banks have applied for the dollar since 8 p.m. The dollar is now available in the dollar at the end of 20 minutes from 20.00. The dollar was traded in a 90-95 roubles range at 20.20 Moscow time.

Before the sanctions were announced, the official dollar rate set by the Russian Central Bank was 89 roubles. Since Moscow's active attack on Ukraine two years ago, many Russian companies have become less and less exposed to Western currencies, and most foreign exchange transactions on the Moscow Exchange are in Chinese yuan.