Economic sanctions and impact
- March 31, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Economic sanctions and impact
Section: External Sector
The sanctions imposed by Western countries such as the United States on Russia, following Moscow’s invasion of Kyiv, may eventually hurt the dominance of the US dollar.
Economic sanctions are penalties levied against a country, its officials or private citizens, either as punishment or in an effort to provide disincentives for the targeted policies and actions. By definition, such sanctions apply to parties not readily subject to law enforcement by the sanctioning jurisdiction.
Economic sanctions provide a policy tool short of military force for punishing or forestalling objectionable actions. They’re widely applicable beyond the sanctioning country’s borders and can be costly to their targets amid increased global trade and economic interdependence.
Sanctions measures include:
- Embargoes: A trade embargo is a broad ban on trading with a country, though it can sometimes include exceptions for the supply of food and medicines on humanitarian grounds. Cuba, Iran and North Korea have long been subject to U.S. trade embargoes.
- Export controls: Export restrictions bar the supply of specified products, services and intellectual property to targeted countries. They often restrict sales of weapons, technology with military applications or, as currently for Russia, oil drilling technologies and equipment.
- Capital controls: Capital controls can restrict investment in targeted countries or industries, or broadly bar access to international capital markets for a country’s issuers.
- Trade sanctions: Trade sanctions can include import controls for specific countries, regions or industries.
- Asset freezes or seizures: Assets within sanctioning jurisdictions can be seized or frozen, preventing their sale or withdrawal
- Travel restrictions: Officials and private citizens as well as immediate family members may be denied travel access to sanctioning jurisdictions.
Sanctions on Russia
- Financial measures
- Western leaders have frozen the assets of Russia’s central bank, limiting its ability to access $630bn (£470bn) of its dollar reserves.
- The US, the EU and UK have also banned people and businesses from dealings with the Russian central bank, its finance ministry and its wealth fund.
- Selected Russian banks will also be removed from the Swift messaging system, which enables the smooth transfer of money across borders. The ban will delay the payments Russia gets for exports of oil and gas.
- Major Russian banks were excluded from the UK financial system, stopping them from accessing sterling and clearing payments. Further major Russian companies and the state will be stopped from raising finance or borrowing money on UK markets
- Trade with Russia and travel
- Curbs on products that can be sent to Russia have been announced by the UK, EU, US and others. These include dual-use goods – items that could have both a civilian and military use, such as chemicals or lasers.
- The EU is aiming to make it impossible for Russia to upgrade its oil refineries. It is also banning the sale of aircraft and equipment to Russian airlines.
- The US has joined the UK, EU and Canada in banning all Russian flights from its airspace.
- Russia more than doubled its key interest rate in an attempt to stem the decline of the rouble, which fell 30% against the US dollar after sanctions were introduced.
- Russia is blocking interest payments to foreign investors who hold government bonds, and banning Russian companies from paying overseas shareholders.
- Foreign investors hold tens of billions of dollars worth of Russian stocks and bonds. Russia has stopped them from selling those assets.
- The EU is worried many wealthy Russians are now converting their rouble savings into cryptocurrencies – such as Bitcoin – to get around the sanctions. However, many of the world’s largest crypto exchanges are refusing to impose a blanket ban on Russian clients.
- Russia’s foreign ministry has threatened sanctions of its own against the West. This may include reducing or shutting off gas supplies to Europe.
- De dollarisation- lead to moving away from a single currency such as the US dollar to a broad set of alternative currencies such as Chinese yuan, Swedish krona or Singaporean dollar.
- Delay in payments and settlement of trade
- Introduction of a new Russia-China payment system, bypassing SWIFT and combining the Russian SPFS (System for Transfer of Financial Messages) with the Chinese CIPS (Cross-Border Interbank Payment System).
- Push to digital currency
- Supply chain disruption and related cost push inflation