- The US and its European allies are ramping up an economic campaign against the Kremlin.
- They're cutting off Putin from accessing over $600 billion in reserves that he could use to prop up the economy.
- "They're now facing a lot of really ugly choices," one sanctions expert told Insider.
The United States and its European allies over the weekend rolled out some of their harshest sanctions yet against Russia for its invasion of Ukraine, escalating their economic campaign against Moscow.
The West is attempting to cut off Russia's central bank from accessing its substantial foreign-denominated financial reserves, estimated to be around $630 billion. It will significantly hobble Russian President Vladimir Putin's ability to draw from that pot of money to finance the war in Ukraine or prop up an economy that's under growing strain from a raft of sanctions.
"The unprecedented action we are taking today will significantly limit Russia's ability to use assets to finance its destabilizing activities, and target the funds Putin and his inner circle depend on to enable his invasion of Ukraine," Treasury Secretary Janet Yellen said in a statement.
Other new sanctions bar American and European Union citizens from trading with the Russian central bank. They're also targeting the country's finance ministry and its sovereign wealth fund in an attempt to prevent Russia from accessing the reserves through a backdoor.
It comes on the heels of additional sanctions unveiled last week booting some Russian banks from the international banking communications system known as SWIFT. The lion's share of the sanctions are falling on the Russian banking industry while sparing others like its energy sector. But experts say that cutting off the central bank of a global power like Russia was a step once considered beyond the realm of possibility.
"This is a sanctions action without precedent," Edward Fishman, the former sanctions head of Russia and Europe at the Treasury Department, wrote on Twitter.
"In one fell swoop, the U.S. and Europe have rendered Putin's war chest unusable," Fishman told The Washington Post.
Russia's foreign reserves are made up of money the country has largely drawn from oil and gas sales to Europe and other energy importers. Nearly half is in dollars and euros, as well as gold and other currencies like the Chinese renminbi, per the Russian central bank.
"Basically, two-thirds of that is now very, very difficult to utilize, if not completely blocked off," Richard Nephew, a senior research scholar at Columbia University who oversaw sanctions policy against Iran, told Insider. "That's pretty significant especially since that was what was supposed to sustain Russia, during the bad period that was to come with everything else."
Though the sanctions are barely a day old, the latest penalties are already having a visible effect on the Russian economy. The Russian ruble shed roughly 30% of its value on Monday, prompting a fresh wave of anxious Russians to withdraw cash from ATMs. Trading on the Russian stock market was temporarily suspended in an effort to contain the economic wreckage.
The sharp drop in the ruble's value diminishes its purchasing power for Russians. As a result, people find they can afford fewer goods with whatever cash they have on hand. The Russian government could print more money to shore up its money supply and salvage the ruble, but that risks causing an inflation crisis.
"They're now facing a lot of really ugly choices," Richard Nephew, a senior research scholar at Columbia University who oversaw sanctions policy against Iran, told Insider. "The decisions they make here are not going to get easier."