'It will be a lot harder on people.' How sanctions will impact ordinary Russians
The West's economic sanctions on Russia sends ruble tumbling and interest rates booming in unprecedented action against former superpower.
- Life could get worse for Russian people who are used to hardship, experts say.
- Russians, despite hardship, gather in streets to protest war on Ukraine.
- The ruble's value is plunging and interest rates are soaring.
Russians lined up at ATMs to withdraw their money, preparing themselves for higher prices and more economic turmoil after the U.S. and Europe imposed more economic sanctions on their country over the past few days.
The sanctions caused a massive devaluation in that country's currency, and the Bank of Russia more than doubled interest rates to 20% on Monday to slow runs on its banks. The ruble initially plunged about 30% against the dollar after Western nations announced unprecedented moves to block some Russian banks from a messaging network that connects financial institutions around the world and to restrict Russia’s use of its foreign currency reserves. But the country's currency recovered somewhat on Tuesday.
Meanwhile, Mastercard and Visa have blocked a number of Russian institutions from their payment networks, making credit cards worthless. And the Moscow Stock Exchanged remained closed Tuesday as it was on Monday.
The moves compelled many Russians to withdraw their money in a country that has seen more than one currency disaster in the post-Soviet era that began in the early 1990s.
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Further, Moscow’s department of public transport warned city residents over the weekend that they might experience problems with using Apple Pay, Google Pay and Samsung Pay to pay fares because VTB, another Russian bank facing sanctions, handles card payments in Moscow’s metro, buses and trams.
Foreign travel would become more expensive for Russians as their rubles buy less currency abroad. And deeper turmoil may emerge in coming weeks if price shocks and supply chain interruptions cause Russian factories to shut down.
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What will sanctions do to Russia?
"This will certainly be felt by the average Russian," said Ben Coates, a Wake Forest associate professor who is investigating the history of economic sanctions in the 20th century. "They will be paying higher prices for many types of goods."
As sanctions hit their economy, thousands of Russians have gathered in cities across the country, including Moscow and St. Petersburg, to protest the war.
The economic sanctions being placed upon Russia are severe, but historically such diplomatic pressure on another country usually is effective only 30% of the time, Coates said.
How could Russia protect its economy?
Sanctions work if the targeted country is weak, but Coates noted that Russia could stop exporting gas and oil, which would significantly hurt economies in Western Europe and the U.S.
Russia also could find ways to evade the sanctions by increasing production domestically or finding substitute goods. "I don't think the Russian economy is going to collapse, but it will be a lot harder on their people," he said.
The ruble slide conjured ugly memories.
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 the government to lop three zeros off ruble notes in 1997. Another drop followed a financial crisis in 1998 in which many depositors lost savings. Yet another plunge occurred in 2014 amid falling oil prices and Crimea sanctions.
The central bank's increase of its key interest rate Monday to 20% from 9.5% was a desperate attempt to shore up the ruble.
Chris Kline, COO and co-founder of Bitcoin IRA, said the sanctions could force more Russians to use cryptocurrencies.
Kline, whose firm runs a digital asset IRA technology platform for more than 100,000 users, said Venezuela used cryptocurrency to deal with hyperinflation, and Russia could be next.
"It's a validation that cryptocurrency is part of global economics and global politics," he said.
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What are sanctions on?
The sanctions affect about 70% of Russian banks, including the top two: Sberbank and VTB, said Paul Christopher, head of global market strategy for the Wells Fargo Investment Institute.
"When bank assets are frozen, people start to worry about their financial health," he said. "There have been reports of long lines at ATMs as people are trying to get their deposits out before a bank goes under."
Christopher said he lived in the former Soviet Union from 1994 to 1996 when he ran a monetary consulting company, and he paid his workers in U.S. dollars because of massive inflation. The workers then quickly exchanged dollars for the local currency and bought food before prices increased and the value of the ruble fell, making goods more expensive.
How do sanctions work?
He said history could repeat itself because the new sanctions will make it extremely difficult for Russians to buy imported goods at reasonable prices.
"The longer it goes on, the more difficult it becomes," he said. "At some point, people will become desperate for food and medicine and goods."
Russians who have borrowed money, such as homeowners with mortgages or business owners who have taken out loans, also could get hit by doubled interest rates, experts said.
Christopher said that although countries like Iran and North Korea have been able to withstand economic sanctions under their dictators, one of Putin's problems is his people have access to Western media and can see reports on death tolls and economic hardships.
How could sanctions affect Putin?
And, Christopher said, the economic sanctions eventually will make it difficult for Putin to lead Russia and finance his war against Ukraine.
"His vulnerability is the Russian economy," Christopher said. "The idea is to raise the costs for Mr. Putin."
Roberto Rigobon, a professor of applied economics at the Massachusetts Institute of Technology and an associate for the National Bureau of Economic Research, said nearly everyone in the global economy will be hurt by Russia's invasion and the sanctions.
"Win-win situations do not exist here. We all have to bear the cost, and that will show up in inflation, especially in gasoline," he said. "This will be an evolving crisis and a massive amount of uncertainty."
Contributing: The Associated Press
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