US sanctions lead to suspension of trading in dollars and euros on Russia's leading exchange.
The most recent US sanctions against Russia have prompted an immediate suspension of trading in dollars and euros on the nation's primary financial hub, the Moscow Exchange. This significant financial market, also known as MOEX, and the Russian central bank jointly issued statements within an hour of Washington's announcement of new sanctions designed to restrict financial flows and goods going towards Moscow's war in Ukraine.
The central bank declared that, "Due to the introduction of restrictive measures by the United States against the Moscow Exchange Group, exchange trading and settlements of deliverable instruments in US dollars and euros are suspended." The consequences leave banks, companies, and investors unable to perform transactions via central exchanges that offer benefits like increased liquidity and better oversight.
Instead, these entities must resort to over-the-counter transactions, where direct deals between two parties are executed. The central bank guaranteed that it would utilize data from these transactions to determine official exchange rates.
Numerous Russians keep their savings in dollars or euros, aware of previous financial crises where the ruble's value plummeted. The central bank asserts that these deposits remain secure.
"Companies and individuals can continue to buy and sell US dollars and euros through Russian banks," it stated. "All funds in US dollars and euros in the accounts and deposits of citizens and companies remain safe."
One employee from a large, non-sanctioned Russian commodities exporter informed Reuters, "We don't care, we have yuan. Getting dollars and euros in Russia is practically impossible."
With Moscow establishing closer trade and political connections with China, the yuan has surpassed the dollar to become the most widely traded currency on MOEX, representing 53.6% of all foreign currency trades in May. Daily volumes for yuan-ruble transactions often exceed 8 billion rubles ($90 million).
In the lead-up to the national holiday, the ruble's closing exchange rates against the dollar and euro were 89.10 and 95.62, respectively. News of the sanctions triggered banks to instantaneously hike their dollar rates.
Norvik Bank disclosed that it was purchasing dollars for 50 rubles and selling for 200 rubles, although it later adjusted the rates to 88.20/97.80. Tsifra Bank was buying dollars at 89 rubles and selling at 120 rubles.
The US Treasury stated that these sanctions were "targeting the architecture of Russia's financial system, which has been reoriented to facilitate investment into its defense industry and acquisition of goods needed to further its aggression against Ukraine."
For two years, Russia's central bank has been preparing for such sanctions. In July 2022, the bank reported it had been working on various sanctions scenarios with foreign exchange market participants and infrastructure organizations.
Russian broker T-Investments expressed on Telegram, "This is bad but expected news." Forbes Russia had disclosed in 2022 that the central bank was deliberating a mechanism to manage the ruble-dollar exchange rate if MOEX and its National Clearing Centre—also targeted by the new sanctions—were kept from trading.
MOEX asserted that it would also cease share trading and money market deals settled in dollars and euros on the exchange. The money market encompasses low-risk, short-term debt instruments such as government bonds and commercial debt.
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In response to the US sanctions, businesses and investors may need to reconsider their investing strategies in the Russian market due to the suspension of trading in dollars and euros on the Moscow Exchange. This could lead to increased reliance on over-the-counter transactions for performing financial transactions.
After the suspension, companies and individuals can still buy and sell US dollars and euros through Russian banks, ensuring that their funds in these currencies remain secure.
