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Russia central bank fears a cash crunch in the wake of new sanctions

Feb 27, 2022 08:00 pm

Russia's central bank has issued an appeal for calm amid fears that new financial sanctions could spark a run on its banks.

It said it "has the necessary resources and tools to maintain financial stability and ensure the operational continuity of the financial sector".

The EU, the US, the UK and Canada have announced that the assets of Russia's central bank will be frozen.

Some Russian banks will also be excluded from the Swift payment system.

A run on Russian banks would see too many people trying to withdraw money. On Friday, Russia's central bank was forced to increase the amount of money it supplies to ATMs after demand for cash reached the highest level since March 2020.

Russia's central bank has reserves of around $630bn (£470bn).

The aim of sanctions against the Bank of Russia would stop it from selling assets overseas to support its own banks and companies. Announcing the measures, Ursula von der Leyen, president of the European Commission, said: "The European Union and its partners are working to cripple Putin's ability to finance his war machine."

Market analysts predict that on Monday the value of the rouble will drop and Russians may rush to remove their money from banks.

"These new sanctions are likely to cause serious damage to the Russian economy and its banking system", said Clay Lowery, executive vice president at the Institute of International Finance. "This will most likely exacerbate ongoing bank runs... causing a sharp sell-off and a drain on reserves."

But on Sunday, the Bank of Russia insisted: "The Russian banking system is stable, has sufficient capital and liquidity to function smoothly in any situation. All customer funds on the accounts are saved and available at any time."

It also said that it will use its own network, called the System for Transfer of Financial Messages (STFS) , for payments within Russia.

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