The start of the military operation in Ukraine has drawn the ire of the US and its allies. These imposed unprecedented sanctions on Russia to destabilize the country’s economy and persuade Moscow to end the conflict. Sanctions targeting the financial system, energy exports and foreign exchange reserves are among the numerous sanctions imposed on the country over the past month. Hard times, however, call for quick countermeasures, and Russia came up with some.
1. National payment system Mir replaces SWIFT
Major Russian banks have been cut off from the global financial messaging system SWIFT, barring them from international markets. However, Russia can now accept electronic transfers via Mir, Russia’s alternative payment system, and work with foreign banks and companies, bypassing Western restrictions. Mir also offers an alternative to Visa and MasterCard, which discontinued their international transaction services for Russian customers.
2. Domestic Forex Trading and New Export Destinations
The sanctions also targeted Russia’s holdings of the euro and US dollar in an attempt to deprive the country of international trade. However, Moscow is in the process of setting up trade mechanisms that will allow payments in national currency with foreign trading partners. Russia and China have had ruble-yuan payment mechanisms for some time, and earlier this month Turkey also agreed to trade in rubles. A ruble-rupee trading system for Russian oil exports to India was also announced. India, which previously only got three percent of its oil imports from Russia, is striving to increase them, as is Serbia. This is a sign that Russia has alternatives for exports if the West continues to isolate the country.
3. Exporters should dump the dollar
To prop up the ruble, which has fallen sharply against major currencies this month, Russian companies trading abroad have been ordered to sell 80 percent of their foreign exchange earnings and convert them into rubles. This is intended to stabilize the national currency and encourage more investments in Russia instead of moving them abroad.
4. Grain export ban to secure domestic supply
Russia this week temporarily banned grain exports to countries in the Eurasian Economic Union (EAEU). The restrictions apply to shipments to post-Soviet countries that share a common free-duty zone with Russia. These include Armenia, Belarus, Kazakhstan and Kyrgyzstan. The measure aims to supply the domestic food market well and prevent price increases.
5. Rate hike to support local currency
With almost half of the country’s foreign exchange reserves frozen and unavailable to support the depreciating ruble, Russia’s central bank urgently raised interest rates from 9.5 to a record 20 percent a year in late February. This step was taken to compensate for the increased risks of devaluation and inflation, or simply to maintain price stability and protect citizens’ savings from devaluation. The regulator also launched additional measures to support lending institutions, recommending that banks not charge interest and penalties on loans, and allow payment restructuring and repayment holidays. These measures helped stabilize the ruble, which has posted six consecutive days of gains against the euro and the dollar since Thursday.
6. Ruble debt payments to avoid defaults
Russia has approved two payments to bondholders totaling $117 million, which are due in US dollars on Wednesday. The money comes from the country’s foreign accounts frozen. It is now up to the US and its allies to approve the transfer. If they fail to do so, the Russian government has ordered the debt to be settled in rubles at the central bank’s official exchange rate at the time of transfer. Western-based institutions insist that Russia faces its first default in a century if the debt is not paid in the issuing currency. Moscow insists that the West is trying to create an “artificial default” because the country has the money to pay off its debts, which it is denied access to.
7. Targeted support for citizens
On Wednesday, President Vladimir Putin ordered new measures to support Russian citizens amid rising prices, unemployment and sanctions-related supply problems. Measures will focus on protecting families with children and elderly citizens. He said a decision on raising the minimum wage, public sector salaries and social benefits, including pensions, should be made in a few days.
8. Financial support for entrepreneurs
The Russian government adopted a draft plan to support small and medium-sized enterprises. Local authorities have been ordered to offer support, including subsidies and loans, to organisations, sole proprietors and the self-employed.
9. Exporters are advised to turn to the domestic market
President Putin urged Russian exporters not to cut production in response to the sanctions, but to supply the domestic market. This will keep prices in the country from skyrocketing, including for gasoline, diesel, metals and other export commodities, he said, adding that import substitution projects have never been more important.
10. Foreign companies offer ways to remain in Russia
Under the pressure of sanctions, a number of foreign companies announced their temporary withdrawal from Russia this month, including IKEA, Microsoft, Volkswagen, Apple, Shell, McDonald’s, H&M and others. Suggestions have been made to nationalize these companies to keep them operating. However, in his speech on Wednesday, President Putin said that Russia will respect private ownership of foreign companies. Previously, he had advocated another idea – the introduction of external management so that foreign companies could be run by partners in Russia. The Ministry of Economy is currently working on a draft law to regulate this procedure.
More on the subject – Russian Prime Minister announces further measures in the face of unprecedented sanctions
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