Russia’s central bank has more than $640 billion in foreign exchange reserves, much of it in the computers of Western central banks in cities such as New York, London and Frankfurt. Any attempt to freeze or quarantine that money could put tremendous pressure on Russia, one of the world’s largest economies.
Targeting the central bank could lead to domestic turmoil in Russia, such as bank runs, depreciating the ruble and causing panic among Russian businesses.
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Michael S. Bernstam, a research fellow at Stanford University’s Hoover Institution, said If Washington and other governments impose complete and immediate sanctions on Russia’s central bank, it would not only be the most effective financial sanction, but in their view the only sanction that could stand Moscow.
The White House has already approved Russia’s biggest banks, but Moscow may turn to its large foreign reserves to prop up those banks for some time. He said removing that option would end Moscow’s ability to bail out its banks.
If the central bank is targeted by US and European leaders, “immediately Russian people and businesses will rush to get the dollar,” Bernstam said. “They will run to exchange bureaus and banks to get 20-dollar bills, 50-dollar bills, but that will not be enough. So there will be a big panic, a run on the dollar. The exchange rate will fall. ,
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The White House had hitherto relied on imposing sanctions to build financial pressure against specific people and businesses in Russia. A far more effective move would be to target Russia’s central bank. Freezing Russia’s bank reserves would be on par with the type of measure that has only been used by the US a handful of times over the past half century. This may have been intended to prevent the Kremlin from using its substantial financial reserves as a backstop for the escalating costs of the war, as US and European sanctions apply.
“If you do this in a coordinated way, you will impose dramatically wide costs on the Russian state. It will say in a jiffy that all of Russia’s reserves are closed and no longer usable,” said a senior research fellow at Columbia University. Scholar Richard Nephew said.
“This could have a devastating effect on the Russian economy. It will be seen as massive growth regardless.”
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But the strategy is not without its risks. America has never taken this step against any country with nuclear weapons. And it is possible that the Kremlin will react by increasing hostilities against Ukraine.
Experts also said that hoarding reserves may not work without coordination with European allies – which the administration has insisted. Of Russia’s $640 billion in reserves, less than $7 billion is in US accounts.
“If you ransom in the stockpile of a country like Russia, you have to stop and think about what they’re going to do,” the nephew said.
Mark Weisbrot, a liberal economist and co-director of the Center for Economic and Policy Research, warned that targeting Russia’s central bank could prove to be a mistake.
“This situation is alarming and there is a need to de-escalate tensions to achieve a diplomatic solution. If there is one thing that recent events have shown, it is that threats to meet or deter military force with economic penalties are not working,” he said. of additional cost to all parties.”
