Feb 28, 2022 - World

U.S. cuts off Russian central bank

The Treasury building

The U.S. Treasury. Photo by Stefani Reynolds/AFP via Getty Images

Russia's central bank will be prohibited from undertaking transactions in dollars under a new concerted effort by the United States and its allies, a move that is set to accelerate Russia's economic tailspin.

Why it matters: The measures will severely limit the Russian government's ability to use its $630 billion in reserves to prop up the value of the ruble or fund its war effort in Ukraine.

  • This represents a serious escalation of the West's financial warfare against Russia in retaliation for its invasion of Ukraine and compromises Russian President Vladimir Putin's ability to sustain the war.

The move ensures that the collapse of the value of the ruble will continue unabated, which will mean soaring inflation and diminishing purchasing power for Russian citizens — and their government. Bank runs are already underway in the nation.

Details: By cutting off the Russian central bank and other financial entities controlled by the Russian government from the global market of dollar assets, the nation is essentially further cut off from the global financial system and its massive pile of reserves becomes, essentially useless. That, at least, is American officials' goal.

  • The Central Bank of the Russian Federation joins a short list of world central banks cut off from dollar transactions that includes Venezuela, Iran and Syria.
  • The measures also cover the Russian finance ministry and a sovereign wealth fund known as the Russian Direct Investment Fund that American officials characterize as a slush fund for Putin and his cronies.

What they're saying: "No country is sanctions-proof when we act together," said a senior administration official who briefed reporters Monday morning.

  • The official added: "$630 billion of reserves only matters if he can use it to defend his currency. After today's actions that will no longer be possible. Fortress Russia will be exposed as a myth."
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