Russian Official Claims Country Will Survive ‘Emotional’ Market Reaction

Tough sanctions being prepared against Moscow
By Naveen Athrappully
Naveen Athrappully
Naveen Athrappully
Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.
February 24, 2022 Updated: February 24, 2022

A Kremlin spokesperson has insisted that Russia will survive the “emotional” financial market reaction to Moscow’s invasion of Ukraine as Western countries, including the United States, have begun sanctioning Russian entities while promising tougher punitive measures.

Russia has prepared enough safety tools to get through the market volatility, Russian diplomat Dmitry Peskov said on Feb. 24. Moscow is taking all steps necessary to ensure that the market reaction is limited to a brief time period.

In the past several years, Russia has implemented measures to mitigate possible Western sanctions against its economy. Russia’s international reserves by January-end were at a record $630 billion, the fourth-highest in the world.

Just 16 percent of the country’s forex reserves is accounted for by the U.S. dollar, which is far less than the 40 percent share the dollar held five years back. Roughly 13 percent of the reserves are in Chinese renminbi.

Moscow has reduced its dependence on foreign investments and loans, and sought more business opportunities in non-Western markets. The Russian government’s debt is just 20 percent of the country’s GDP.

The annual budget is in a surplus, due to which Moscow is free from any need to borrow money. Russia is also taking steps to establish a new international payment system so that it is not dependent on the SWIFT payment service which is controlled by Western banks.

“What Russia is doing—in effect—is building almost an alternative financial system so that it can withstand some of the shocks of sanctions that the West might impose,” Dr. Rebecca Harding, chief executive of Coriolis Technologies, said to BBC.

“But there will be some short-term pain in all of this, and the vulnerabilities in the Russian system are that they have a web spread very thinly across the globe.”

Despite Russia’s long preparations, Western sanctions might prove a bit too hard for it to bear. The UK has announced sanctions against five Russian banks. Germany halted the certification of the Nord Stream 2 pipeline, and the United States has announced sanctions on two Russian financial institutions.

Tougher sanctions from the United States and the E.U. are reportedly incoming, which includes potentially blocking tech exports to Russia. Such a move will seriously damage Russian tech businesses that depend on the import of Western hardware and software.

Even though Moscow has attempted to shun its dependence on the U.S. dollar, it still is inextricably linked to the American currency deeply. Over 50 percent of Russian exports continue to be priced in dollars, with another 30 percent being priced in euros.

The Russian currency, rouble, faces a risk of massive weakening against the dollar and euro, thus driving up inflation which is already at its highest level in six years.

Post the Russian invasion of Ukraine, the rouble crashed to its lowest level since 2016 on Thursday, forcing the Moscow Exchange to suspend trading activities. Investors ran for safe-haven currencies like the U.S. dollar, Japanese Yen, and Swiss Franc.

In the near term, investors are likely to continue favoring these three currencies in a bid to avoid being exposed to risk, MUFG analyst Lee Hardman said.

“In contrast, risks remain heavily tilted to the downside for the rouble and other European currencies which are more sensitive to negative spillovers from military action in Ukraine,” Hardman added.

Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.