The United States, Canada, Britain, Europe, and Canada have announced new measures that will restrict the Russian central bank’s international reserve. These moves will be taken in the next few days.
Investors feared Russia would be kicked out of SWIFT, the main international payment network in the world, because this would disrupt global commerce and harm Western interests, as well as Russia.
Sergei Aleksashenko, former Deputy Chairman of the Russian Central Bank, stated that it meant there would be a crisis on the Russian currency exchange market Monday. “I believe they will cease trading, and then the exchange rates will be fixed artificially at an artificial level, just like in Soviet times.”
Michael Farr, chief executive at financial consulting firm Farr, Miller & Washington LLC, stated that the impact on global markets could be a surprise. “If it means a slowdown of international trade, this might not be taken very well.”
This news comes after markets around the world were shaken by worries about the Ukraine’s growing conflict. Investors rushed to the dollar, gold and other safe havens as stocks plummeted and oil prices shot up.
Many of these safety moves were unwound at least partially on Thursday and Friday and the U.S. stock market rallied to close the week.
Markets could be sent on a wild ride by the latest measures. Traders will assess the implications for global economies, including higher commodity prices. Already, oil prices have risen to their highest levels since 2014 due to the war between Ukraine and Russia, which is one of the largest exporters of raw materials in the world.
The S&P 500 has fallen 8% in the past year, due to worries about geopolitical turmoil and a Federal Reserve that is more hawkish.
Edward Moya, OANDA’s senior market analyst, said that traders had been convinced that the U.S. or Europe weren’t taking a tough stance. “This action will be very difficult to digest, and it will really pick up a nerve for many investors. The rebound that we witnessed in the second half of last week’s fourth quarter will be challenged.
Mohamed El-Erian is part-time chief economist at Allianz, and chairman of Gramercy Fund Management. He said that excluding Russia from SWIFT “has potential to cripple their economy there” if done in a comprehensive manner.
He stated in an email comment that “Inevitably there will be spillovers & spillbacks, including more a stagflationary boost to the global economy, and greater likelihood of Russian arrears Western companies and creditors”, he stated.
Globalt Investments senior portfolio manager Tom Martin said that the move will continue to fuel demand for gold, Treasuries, and other popular destinations for nervous investors.
He stated that SWIFT was going to be difficult and that the markets would recognize it. “What you will get is volatility because all participants will be adjusting risk tolerance.”
Investors believe that the Russian ruble will be one of the most vulnerable. The Russian rouble fell to an all time low against the U.S. Dollar in the last week, but it recovered some of its losses on Friday.
Karl Schamotta (Corpay’s chief market strategist) said that the central bank will likely face severe restrictions on currency intervention. “The rouble will struggle for a bottom.” “No one wants a falling knife.”
However, some investors suggested that the markets could be positive about the new measures, as the West has not joined the conflict.
Ross Delston, a former bank regulator and U.S. lawyer, said that “it’s the closest thing about a declaration of war financially.” It will lead to Russia being considered radioactive by the U.S. and EU banking institutions, which would in turn be a significant barrier to trade with Russia.
