Vladislav Inozemtsev: "A new economic reality will come on Monday"

“What has happened in the past twenty-four hours has changed the Russian economic reality. On Monday, the country will wake up in a different world than the one in which people left work on Friday. I'm not trying to exaggerate, but the sanctions adopted on the evening of February 25 and during the day of February 26 will hit critical elements of the Russian economy. And the point is not that the US and the G7 countries will begin to hunt for the assets of oligarchs close to the Kremlin and their families - this will not change much, because. these people have long lost or never had influence on Putin - and in the fact that operations with the assets of the Bank of Russia (in other words, the famous gold and foreign exchange reserves, one of the largest in the world) will be limited, a number of banks are excommunicated from the SWIFT system, and the Russian aviation the industry in a few days will lose its international network, and in a few weeks - a significant number of aircraft leased from European companies.

Yes, we have heard many times that Russia's reserve assets are "de-dollarized", but that is not the problem. It is believed that about 17% of the reserves are now in dollars, but the problem is rather that at least 450 billion dollars out of 643 billion are funds placed in securities of foreign issuers or on deposits in foreign banks. If all G7 countries restrict the possibility of their use, then we can assume that these assets are immobilized regardless of the currency in which they are nominated.

Yes, the Bank of Russia has at least $30-35 billion worth of cash and almost $140 billion worth of monetary gold, but it is not clear how they can be used in non-cash payments.

At the same time, the deposits of the population amount to about 30 trillion. rubles, or about a fifth of which (6 trillion, or 80 billion dollars at Friday's out-of-date exchange rate) are foreign currency deposits. They (taking into account cash in banks and possible support from the Bank of Russia) citizens will be able (I want to believe) to pick up. However, what will happen to corporate currency accounts is unclear.

Moreover, it is not clear whether the Bank of Russia will be able to carry out foreign exchange interventions to maintain the ruble exchange rate (we owe it to them that the exchange rate remained within the “acceptable” range on February 24?

The sale of monetary gold under sanctions is an extremely difficult task: it is worth asking the employees of the Bank of Venezuela, who tried to sell a significant batch of it in 2019: then the bars had to be delivered to Uganda, from where, after being melted down, it seems to have reached the cellars of the Bank of Turkey (I note, only 2 tons of gold traveled this way, while Russia has more than 2 thousand tons of it). Moreover, it is unclear where the payment for the metal can go in case of blocking accounts. One way or another, I repeat: the morning of the coming Monday will be more difficult for financial Russia than the morning of August 17, 1998.

However, the problem will be not only in the ruble exchange rate or stock market panic. The reverse side of sanctions of various kinds (from financial to transport, not to mention the moral condemnation of the Kremlin's aggression) will be a quick break in the supply chains of goods to Russia. No matter how uncritical our imports may seem, there are hundreds and thousands of points in it, the blows to which will turn out to be very painful. Over the past eight years, we have made little progress in import substitution, so the problems will be very significant - and the price increase for some commodity items (primarily intermediate ones) will be calculated not by percentages, but by times.

The closure of the airspace of all of Europe and North America for Russian aircraft and retaliatory symmetrical sanctions will only be the icing on this beautiful cake.

Yesterday I wrote that Russia can survive quite steadily under sanctions against leading banks and even restrictions on SWIFT (which, as expected, will also not affect all financial institutions). But with the appearance among the defendants on the sanctions list of the Bank of Russia, everything has changed significantly. Russia will inevitably face a significant economic downturn this year, and the inflation rate is now difficult even to predict...”