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Russia: Cash, Payments, and Western Sanctions

Categories : Cash and Crises, Cash generates security, Cash is a contingency and fall-back solution
March 8, 2022
Tags : Access to cash, Cash and Crises, Europe, Russia, Sanctions
Demand for foreign and domestic cash spiked in Russia after Western nations announced financial sanctions following the invasion of Ukraine. Massive cash withdrawals and runs on savings could trigger a banking panic and cause a financial meltdown.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

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.

Financial authorities and commercial banks alike sought to reassure the public about foreign currency deposits:

On March 1, the Kremlin imposed capital controls, banning residents from sending money to bank accounts abroad and blocking external debt payments.

EU Bans Exports of Euro 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, payment 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.

Russian authorities and commercial banks moved to secure the continuity of banking services and the cash supply:

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.

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.

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.

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.

This post is also available in: Spanish