The Central Bank assessed the impact of new US sanctions on the ruble exchange rate

The Central Bank (CB) of Russia for the first time assessed the impact of new U.S. sanctions on the financial system of Russia. This became known from the financial stability review of the Central Bank, published on November 29.

The US sanctions against Russian banks imposed in 2024 have significantly affected cross-border settlements and the infrastructure of the domestic foreign exchange market, the Central Bank noted.

"As previous episodes of sanctions show, the restrictions create infrastructural problems for foreign economic activity, but in the medium- and long-term period the dynamics of the exchange rate is determined by fundamental factors," the Bank of Russia review said.

After the introduction of restrictions against the Moscow Exchange, through which foreign currency trading in the Russian Federation was carried out, trading in dollars and euros on the site were stopped, and the main exchange currency became the yuan.

As specified in the Central Bank, transactions with the currency of the United States and Europe are now concluded in the over-the-counter market, and to set the official rates of the dollar and euro, the regulator uses information from banks - the organizers of such operations.

"In June-July 2024, the spread did not exceed 2%, but already in August there was a significant increase - at the peak it amounted to 10%," the Central Bank said.

But the report specifies that in September the market had already adapted to "the infrastructural restrictions imposed" and the ratio of exchange rates on the Russian and international markets normalized.

According to the Central Bank, the liquidity spillover from the exchange-traded to the OTC market led to a temporary widening of spreads between yuan-dollar exchange rates in Russia and abroad.

"However, as the market adapted, the spread returned to its normal level (not exceeding 0.5%)," the Central Bank said.

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On November 21, the United States took additional measures to restrict Russia's use of the international financial system. The United States imposed sanctions against the first deputy chairman of the Bank of Russia Vladimir Chistyukhin and Dmitry Tulin. Gazprombank also fell under the sanctions.

On the same day, Finance Minister Anton Siluanov said that the Western sanctions will not lead to restrictions on Russia's foreign trade. According to him, all restrictions by Western countries first of all hit them. Siluanov emphasized that in 2024 the dynamics of economic growth in Russia will be about 4%, while the dynamics of the West will be "0.1% at best".

Western countries increased sanctions pressure on Russia after the start of the special operation to protect civilians in Donbass, which was announced on February 24, 2022.