The Biden administration imposed new sanctions on Russia’s central bank Monday, aiming to accelerate the cost of Moscow’s escalating war in Ukraine.
Russia’s economy was already facing pressure as the central bank more than doubled interest rates on Monday in response to sanctions over the weekend, with Russian President Vladimir Putin convening an emergency meeting to address the fallout. The new penalties block Americans from doing business with the institution and freeze assets, preventing Putin from attempting to defend the ruble. The measures also target Russia’s National Wealth Fund and the Ministry of Finance and follow similar actions by European leaders.
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“We wanted to put these actions in place before our markets open because, what we learned over the course of the weekend from our allies and partners was the Russian Central Bank was attempting to move assets, and there would be a great deal of asset flight starting on Monday morning from institutions around the world,” the first senior administration official said.
Russia holds hundreds of billions of dollars of central bank assets outside of the country that it could otherwise rely on to halt the ruble’s slide and slow inflation. The action announced by the Treasury Department Monday will halt the Russian central bank’s ability to sell its foreign currency reserves. Two senior administration officials said on a call Monday that the action would take effect immediately.
“Our strategy, to put it simply, is to make sure that the Russian economy goes backward as long as President Putin decides to go forward with his invasion of Ukraine,” the official added.
The decision will limit Russia’s ability to use its dollar holdings to evade U.S. economic penalties, forcing the country to deplete its reserves more quickly, weakening its currency, and exacerbating liquidity problems. Russia holds a war chest of more than $630 billion in reserves, composed of gold, bonds, deposits, and foreign currency securities.
By blocking Russia from using its foreign reserves, the squeeze will make financing the war in Ukraine more difficult and expensive, the senior official said.
“We knew that ultimately, one of the things that we would need to do to ensure that our sanctions would be effective is at some point to go after that war chest. And that’s exactly what we’ve done today,” said the official.
As of Monday, Russia will no longer be able to access dollar assets in jurisdictions outside the U.S. or currency reserves in Japan or Europe.
“Our goal was to make sure that not only would they not have access to dollars, but also not have access to other currencies that would be critical to their ability to support their economy. That’s why doing this in a multilateral way with our allies and partners is so important,” said the official.
Another senior official said the move was intended to drive up the cost of Putin’s invasion of Ukraine.
“This is a negative and vicious feedback loop that Putin has triggered,” this official said. “And as to whether it affects his calculus, all we can do is make sure this is a strategic failure. And the evidence that this failure is becoming more clear by each moment.”
Still, the Treasury Department will exempt some energy related transactions, an important source of revenue to Russia’s economy. The White House said the decision would prevent global energy prices from surging, harming consumers. “That would only pad the pockets of President Putin,” the first official said.
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The Kremlin said Monday that Putin would head a meeting with the Cabinet and central bank later after sanctions “considerably changed Russia’s economic reality.”
“These are heavy sanctions, they’re problematic, but Russia has the potential to compensate the damage,” Kremlin spokesman Dmitry Peskov told reporters. He said Putin was unaffected by personal sanctions levied against him Friday, however.
The Russian leader “is quite indifferent. The sanctions contain absurd claims about some assets,” Peskov said. “The president has no assets other than those he has declared.”
