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RE: Ukrainian Invasion: Will sanctions work against Russia?
It's me again
I was wondering if you have any view on futute of Russia financial system (especially from the perpective or regular people) after interest rates has been hiked to 20%?
I can hardly imagine being able to pay any loans or morgage in similar situation. Especially while knowing, that all imported items will cost so much more since value of Rubel dropped so badly.
Any thoughts you like to sharE?
Cheers, Piotr
We need to remember that the Russians are good Chess players - meaning they understand strategy. By saying that we can assume that Putin did not make this move without a proper strategy and contingencies to back it up. I cannot speak for Russia because I am just an observer like anyone else, but I can take a guess
The possibility to be disconnected from SWIFT is great. After Obama weaponised the financial system, I am sure Russia took the possibility into account. As I said such a move will not only harm Russia but the whole global financial system. Already in 2014 Russia developed an alternative system to SWIFT, the SBFS system that is currently connected to 23 foreign banks. Not great and on the same level as SWIFT, but it can support its banking clients.
Regarding the interest rate, my guess is as good as yours. What I think is that they also learn a lesson from the notepad of Paul Volcker, Fed Chairman in 1979. The out of control inflation of the 1970s forced Volcker to take dramatic steps by increasing the interest rate. The days of "easy credit" turned into the days of "very expensive credit." The prime lending rate exceeded 21 per cent.
The effect on the American economy was also drastic. Unemployment reached double digits in some months. The dollar depreciated significantly in world foreign exchange markets. Volcker's tough medicine led to not one, but two, recessions before prices finally stabilized. Paul Volcker was vilified for years because of the steps he had to take to break the back of inflation. "Wanted" posters targeted him for "killing" so many small businesses. Yet he remained resolute, doing what he knew was best for the country in the long term.
Without his bold change in monetary policy and his determination to stick with it through several painful years, the U.S. economy would have continued its downward spiral. By reversing the misguided policies of his predecessors, Volcker set the table for the long economic expansions of the 1980s and 1990s.
To answer your questions, yes the Russian interest rate is going to create hardship in the short term, but it can be the cure needed to get out of the global financial crisis fueled by America. In a few years, they might be better off than the rest of the world due to this.
Just my guess!
Can you tell me more about it @krabgat?
How did Obama weaponize financial system?