Russians Scramble to Withdraw Euros and Dollars
Many Russians have held savings in foreign currencies since the financial crisis of August 1998, when the government suspended debt payments and devalued the rouble. On February 24, hours after Russian forces invaded Ukraine, people lined up to withdraw dollars and euros from ATMs and foreign-exchange bureaus, fearing limits to hard currency withdrawals and currency controls. “The dollars have run out in many parts of Moscow,” said MSNBC reporter Keir Simmons that day.
The Russian public rushed to withdraw euros and dollars after the European Union, Switzerland, the United Kingdom and the United States announced unprecedented sanctions against Russia, ejecting seven Russian banks from the SWIFT global payments platform and freezing the central Bank of Russia (CBR) ’s sizable international reserves.
- “I’m seeing panic right now. Although people are standing quietly in line, they are afraid for their moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More,” said Albert Ovchinnikov, a 25-year-old graphic designer in Moscow.
- “I recall in the 1990s prices were set in dollars, even if it was illegal. The rouble was worthless. And I worry this is what we will see again,” said Alexei, an IT specialist waiting to exchangeThe Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. More roubles into dollars.
- “Who knows if there are bucks in Tinkoff[’s ATM]?” asked a man near the Mitino subway station in Moscow. ATMs owned by the online banks Tinkoff stopped dispensing euros and dollars in Moscow, Perm, and Krasnoyarsk, among other cities. A Twitter user shared a video showing how a Tinkoff ATM in Moscow ran out of cashMoney in physical form such as banknotes and coins. More in 40 minutes. An anonymous IT specialist developed a Telegram bot that shares the location of Tinkoff ATMs with euros or dollars.
- “As strange as it sounds, in general there’s no panic at stores or ATMs […] There’s clearly no easy solution, but I wasn’t about to run and buy up euros or dollars or get something just to spend money,” said Elmira, 48, who works in education in Ufa in the Urals region.
Financial authorities and commercial banks alike sought to reassure the public about foreign currencyThe money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. More deposits:
- “All customer funds in foreign currency will be preserved and may be withdrawn in the currency of account,” said reassuringly the CBR. However, the central bank cannot access funds abroad to stabilize the rouble and has just about $12 billion in physical foreign cash, according to Michael S. Bernstam, a research fellow at the Hoover Institution.
- As of February 28, Sberbank customers could no longer order euros or dollars via its banking app – they had to purchase them in the bank’s branches. “We replenish ATMs in an enhanced mode,” said Tinkoff. Alfa-Bank said its customers could “withdraw the required amount at ATMs or cash desks.”
On March 1, the Kremlin imposed capital controls, banning residents from sending money to bank accounts abroad and blocking external debt payments.
- On March 9, the CBR announced that banks would no longer sell foreign currencies, and customers with foreign-currency accounts were allowed to withdraw up to $10,000 in physical dollars, with further amounts in rubles.
- Two days later, the CBR established that residents can receive a maximum of $5,000 in foreign cash “only to cover expenses for foreign business trips.”
EU Bans Exports of EuroThe name of the European single currency adopted by the European Council at the meeting held in Madrid on 15-16 December 1995. See ECU. More Banknotes
On March 1, the Council of the European Union published a decision in the Official Journal banning the sale, supply, transfer or export of euro-denominated banknotes to Russia or any natural or legal person, entity or body in Russia, including the government and the CBR, or for use in Russia. The ban does not apply to persons travelling to Russia and their family members, diplomatic missions and international organizations with legal immunity status.
Visa, Mastercard, and Amex Suspend Operations in Russia
On March 5, paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More networks Visa, Mastercard and American Express announced they would suspend operations in Russia, further isolating the country’s financial system. As a result, cards issued in Russia will no longer work –either for payments or ATM withdrawals– outside the country. Foreign-issued cards will no longer work in Russia.
PayPal also said it would shut down services in Russia. PayPal was the third most popular online payment service in Russia after Sberbank and Yandex, according to a 2019 Mediascope survey.
Russians Withdraw Roubles, Too
Russians have started making long lines to withdraw roubles too. The demand for cash has spiked 58-fold in the past few days. Daily cash withdrawals reached 111 billion roubles on February 25, their highest level since the beginning of the Covid-19 pandemic.
- “Since Thursday [February 24], everyone has been running from ATM to ATM to get cash. Some are lucky, others not so much,” said Pyotr, a St. Petersburg resident. Residents of Belgorod and Kostroma also formed long queues to use ATMs.
- “I was going from ATM to ATM to try to find machines that would provide cash. Emotionally, it’s been tough because I have to worry about all these existential matters, right? Making sure I have enough cash and all that while also trying to study,” said Nigel Li, 22, a Singaporean student in Moscow.
- Some Russians were buying iPhones and other expensive electronics, anticipating inflation. “For the past few days, it’s been like Christmas for us. People are ready buy things even [though] we have been raising prices every few hours based on the forex situation,” said an electronics shop assistant in Moscow.
Russian authorities and commercial banks moved to secure the continuity of banking services and the cash supply:
- The CBR announced it would ensure sanctioned banks’ “uninterrupted operations.” On February 25, the CBR said it “continuously provides banks with cash to replenish ATMs during the business week.” To satisfy the growing demand for cash, the CBR increased the “amount of cash issued to banks, [and] ATMs will be replenished this weekend again.”
- “The banking community is prepared for different scenarios: we have enough liquidityDescribes the extent to which assets or rights can be converted into cash without causing a significant decrease in the asset’s price. Accordingly, liquidity is often inversely proportional to the profitability of the asset and involves the trade-off between the selling price and the time needed to convert it to cash. In finance, cash is considered the most liquid asset and cash is sometimes used as a synonym for liquidity (e.g. cash reserves; cash pooling…). More to meet demand and there are no restrictions on withdrawing cash either at ATMs of branches,” said Sberbank, VTB, Alfa-Bank and Otkritie to Reuters.
Sberbank’s Customers in Europe also Run for Cash
According to the European Central Bank (ECB), the European subsidiary of Russia’s state-owned Sberbank faces bankruptcy. Anxious Sberbank customers lined to withdraw funds in Austria, Hungary, the Czech Republic, Croatia, Slovenia, Bosnia and Herzegovina, and Serbia.
- “I’m just taking my money out quickly,” said Otto Szucs, a 77-year-old pensioner withdrawing cash from a Sberbank ATM in Budapest.
- In Budapest, Sandra, 33, said she feared for her husband’s 40,000-euro business account. They were “really very, very scared by the possibility of Sberbank’s bankruptcy. It’s his life savings.”
- Sberbank closed its branches in the Czech Republic, citing security concerns. The bank employees were “facing physical attacks,” said Sberbank spokeswoman Radka Cerna. Sberbank has also suspended operations in Slovenia, limiting customers’ withdrawals to 400 euros a day.
Cash Withdrawals ➞ Bank Runs ➞ Financial Crisis?
Massive cash withdrawals and runs on savings could trigger a banking panic and cause a financial meltdown in Russia, said Elina Ribakova, deputy chief economist for the Institute of International Finance.
- “Cash withdrawals are harming Russia, the banks’ liquidity is falling,” said a Western banker in Moscow.
- “If everyone wants access to their savings by withdrawing money from ATMs, banks may not be able to cope. People’s individual strategies to keep themselves safeSecure container for storing money and valuables, with high resistance to breaking and entering. More can bring about a banking crisis in which everyone suffers,” said Thomas Pepinsky, professor of government and public policy at Cornell University.
- “The Bank of Russia is continuously providing cash and non-cash roubles to banks. Due to the high demand for cash, the banking sector is now experiencing a structural liquidity deficit,” said Bank of Russia Governor Elvira Nabiullina.
- “If people trust the currency, the country exists. If they don’t, then it goes up in smoke,” said Michael S. Bernstam, from the Hoover Institution.
Crypto to the Rescue?
Russia could use crypto to bypass the sanctions. Since the launch of the attack on Ukraine, trading between rouble and crypto-assets has doubled, reaching $60 million a day, reports the Financial Times.
Mykhailo Fedorov, the Ukrainian minister of digital transformation, called on “all major crypto exchanges to block addresses of Russian users,” saying it is “crucial to freeze not only the addresses linked to Russian and Belarusian politicians but also to sabotage ordinary users.”
Coinbase, Binance and Kraken, three of the world’s largest cryptocurrency exchanges, have refused to introduce a universal block on Russian accounts.
- “To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists,” said Cayman Islands-registered Binance.
- Jesse Powell, the founder of Kraken, said his company’s mission was to “bridge individual humans out of the legacy financial system and bring them into the world of crypto, where arbitrary lines on maps no longer matter, where they don’t have to worry about being caught in broad indiscriminate wealth confiscation.” He added that Kraken could not freeze the accounts of its Russian users without a legal requirement to do so, as such a move would violate the company’s “libertarian values.”
However, regulation may happen sooner rather than later. E.U. and U.S. lawmakers seek to prevent the use of crypto to circumvent sanctions on Russia.
- E.U. Finance Ministers and officials addressed the issue by video conference last week. ECB President Christine Lagarde called for legislation banning crypto exchanges from dealing with Russian clients.
- The Financial Times reports that Democrats on the influential U.S. Senate Banking Committee wrote a letter to Treasury Secretary Janet Yellen expressing their worries that Russia could use cryptocurrency to evade sanctions. “Strong enforcement of sanctions compliance in the cryptocurrency industry is critical given that digital assets, which allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion,” wrote the U.S. senators.
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