The US placed sanctions on Russia’s central bank and other important sources of income on Monday, striking a crippling blow to the country’s economy as part of a broader retaliation for Russia’s invasion of Ukraine.
The new regulations, which prohibit Americans from transacting with Russia’s central bank, finance ministry, or national wealth fund, are expected to raise Russian inflation, suffocate its purchasing power, and stifle investment, according to US officials on Monday as the new measures went into effect.
After Russia’s military invaded Ukraine in the greatest assault on a European state since World War Two, Washington announced three rounds of sanctions last week, including against Russian President Vladimir Putin and major banks.
“Our goal is to ensure that the Russian economy goes backward if President Putin decides to pursue an invasion in Ukraine, and we have the tools to do so,” a senior US administration official said on Monday.
The measures came after the US and its allies declared on Saturday that they would take action against the central bank and ban some US banks from the SWIFT international payments system, a list that officials said was still being finalized with EU partners.
In a statement released on Monday, the US Treasury Department said it had imposed sanctions on the Russian Direct Investment Fund, its management business, and its chief executive, Kirill Dmitriev, whom Washington accused of being a close ally of Putin.
As the country faces greater economic isolation, Russia’s central bank more than quadrupled its key policy rate and imposed certain capital controls on Monday, but its governor said sanctions prevented the central bank from selling foreign currency to prop up the rouble.
According to a US official, Russia counted on being able to use its central bank’s assets to buffer the impact of sanctions while preparing its invasion of Ukraine and has been working to repatriate those funds back to Russia or safe havens since Saturday’s announcement.
The restrictions announced on Monday “immobilized” any assets held by Russia’s central bank in the United States, limiting Russia’s ability to access hundreds of billions of dollars in assets.
“Putin’s $630 billion war chest of reserves only matters if he can use it to defend his currency, specifically by selling those reserves and buying the rouble,” a second senior administration official said.
“That will no longer be conceivable after today’s action, and ‘Fortress Russia’ will be exposed as a farce.”
The action was a “tremendous example of Western unity,” according to Mark Sobel, a former senior Treasury official who now serves as the US chairman of the OMFIF forum for central banking, economic policy, and public investment.
“It all happened overnight, and the force of it effectively cut a major country off from the global financial system.” And there’s never been anything like that before,” Sobel remarked.