US sanctions: dollar freeze will break Russia

The announcement by the Americans of new sanctions against Russia makes us consider the worst scenarios. Moreover, Russian Prime Minister Dmitry Medvedev called these actions "economic war" and expressed readiness to respond to them with all available means.

Фото: Depositphotos

«BBC”Figured out whether the States can arrest the accounts of the Russian Central Bank (CB) and what the restriction of dollar settlements for state banks of Russia will lead to.

Congress and the State Department promised Russia new sanctions. The first package of restrictive measures will be introduced 22 August. It implies a ban on the supply to Russia of weapons, electronic devices and other dual-use products. The second stage of the State Department promises three months later, if Russia does not give a guarantee of non-use of chemical weapons and agrees to an independent inspection of certain military facilities by UN inspectors.

In the second package, there is a reduction in the level of diplomatic relations, the suspension of direct flights from Russia to the USA, restriction of export-import operations, and so on.

The bill proposed by a group of senators led by Lindsay Graham suggests, inter alia, the introduction of a ban on transactions with the new Russian government debt and a ban on dollar settlements using correspondent accounts in the US for Russian state banks (Sberbank, VTB, VEB, Gazprombank, RAB, Promsvyazbank, Bank of Moscow).

Announcement of new sanctions provoked a panic on the financial market of Russia. Sales of Russian securities and currency buying actively went on Thursday and Friday last week. On Monday, August 13, the dollar tested the level at 68 rubles, the euro was moving up to 78 rubles per unit.

In addition, experts fear more radical steps on the part of the American authorities. In November, the states will hold mid-term elections to Congress, and everyone will want to score points on the Russian topic, including President Donald Trump.

"Theoretically, the United States can impose sanctions against the Bank of Russia, there have already been similar precedents in history - in particular, the accounts of the Central Bank of Iran were blocked," - Aleksey Korenev, an analyst with Finam, said.

As part of the sanctions against Iran, which were in force at the time of the signing of the “nuclear deal” in April 2015, the accounts of the national bank of this country were frozen, and a ban was imposed on transactions with Iranian credit organizations and on settlements in dollars. At the same time, even after the formal lifting of the sanctions, the United States did not return its $ 2 billion to Tehran.

There are other examples. Last October, the Bank of New York Mellon voluntarily agreed to freeze $ 22,6 billion of the National Fund of Kazakhstan, which was managed by the Kazakhstan National Bank.

Teletrade financial consultant Mikhail Grachev believes that the US sanctions against the Bank of Russia may consist in freezing the assets of the Russian Central Bank and disconnecting from international payment systems, which will make it difficult to service the public debt.

At the same time, experts believe that the Russian Central Bank takes these risks into account. As Roman Konigsberg, head of risk management at FBK Grant Thornton, explained, the Bank of Russia is most likely trying to minimize these risks, in particular, by buying gold.

“The Central Bank is doing the right thing by buying gold in the domestic market. Among other things, gold is stored in Russia. Another thing is that you can only buy gold in a limited volume, because buying a large volume will instantly raise the price, and then the price will inevitably bounce back, ”the expert explains.

Now the Russian central bank has more than 1,9 thousand tons of gold. The money is $ 77,4 billion, the 1 regulator reported in August of this year. Gold accounted for almost 17% of all the country's gold reserves.

The US Treasury can really arrest or freeze the funds of Russian state structures in the United States, as it did, for example, with the assets of Iran, Libya, Syria and other countries, says Maxim Osadchy, head of the analytical department of the BKF.

“It’s not for nothing that the Central Bank has recently been actively reducing investments in American securities,” he adds.

So, according to the US Treasury, for March of this year, Russia had bonds worth $ 96,1 billion, but in April only $ 48,7 billion remained. The May figure fell to $ 14,9 billion. This is the lowest value in the last 11 years. And this is almost 12 times less than the peak value of $ 176 billion, recorded in October 2010 year. In general, foreign-owned properties are US bonds worth $ 6,21 trillion.

Фото: Depositphotos

However, experts still consider the decision of the United States to freeze or seize Russian assets as highly unlikely.

Such an arrest will inevitably entail Russia's recourse to international courts, which may well overturn such a decision by the United States, says Alexey Korenev. To introduce such measures, we need very weighty reasons, they can be attributed to extraordinary, and it is unlikely that most senators and congressmen will support them.

“Sanctions against US central banks are almost unthinkable, since the central banks of the world provide liquidity to the US dollar by quoting national currencies against the“ American. ” That would be tantamount to a shot in the leg, ”says Vladimir Rozhankovsky, an expert at the International Financial Center.

At the same time, although the arrest of Bank of Russia assets is unlikely to happen, experts consider sanctions against Russian state-owned banks to be a very likely scenario.

In this case, Visa and Mastercard, issued by state-owned banks that have fallen under sanctions, will be blocked, and banks will in fact be deprived of the opportunity to perform non-cash transactions in dollars.

Practically with the 100-percent probability, any such actions by the United States will lead to a sharp collapse of the ruble. The Central Bank will have few exits - letting the ruble go free with a stopping point far beyond 100 rubles per dollar or introducing currency regulation, which in some time can generate the shadow currency market.

“It is possible that, given the dominance of state banks in the Russian banking market, the country's leadership will have to resort to extraordinary measures. For example, freezing deposits in foreign currency or converting them at a compulsory unfavorable rate for depositors, following the example of how it happened in Argentina, ”Osadchy argues.

However, it is not yet clear which of the proposed measures will reach implementation. “It is unlikely that, for example, a ban on payments in dollars for Russian banks will be introduced or Aeroflot flights to North America canceled,” suggests Aleksey Korenev.

These steps are not in the interests of the American business itself, and the overseas legislators are unlikely to dare to pass laws that infringe upon American companies that have an interest in Russia.

Experts are hoping for a better script. For example, Moscow was threatened to be disconnected from the system of instant interbank payments of the SWIFT system from 2014 of the year, but so far this threat has not been realized.

Nevertheless, in the opinion of Alexei Korenev, even if some of the announced sanctions are finally adopted, the Russian banking system will have difficulties.

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