Initially, in early March, this appeared to work. The moves aimed to collapse the Russian currency, making it hard to finance and conduct the war. Severe limits were placed on a number of Russian banks, and most foreign exchange reserve assets of the Russian central bank were frozen.
The Group of Seven and its allies imposed harsh financial and economic sanctions on Russia beginning in late February 2022, following the invasion. Initial impact of sanctions appears fleeting This time, the ruble’s decline is attributable to trade sanctions and plunging export earnings rather than sanctions affecting the central bank and individual financial institutions. However, the current currency malaise is different.
The move is reminiscent of Russia’s 1,150 basis-point (11.5 percentage-point) policy rate increase in response to Western financial sanctions after its Ukraine invasion. To stabilize the currency, the Russian central bank held an emergency meeting in August and raised interest rates from 7.5 percent to 11 percent. Russia’s currency is losing value, falling 40 percent against the U.S.
