As Russia threatens the world with its nuclear weapons and proposes talks at the same time, western economic sanctions have come to bite. Its financial resources to fight the war are running out faster than anticipated. If the Ukrainians can hold on for a few more weeks, the Russian economy will be devastated.
It will be interesting to watch how its markets behave today.
Ruble Trouble
Meanwhile, its currency is dropping like a rock. Russian commercial bank Tinkoff was quoting an exchange rate on Sunday night of 164 Rubles to the Dollar for ruble sellers, and 92 for buyers — a massive spread that implies people’s savings in the Russian currency will effectively halve in value.
Google, Apple Pay Won’t Work
There are also warnings by Russian private banks that the digital payment apps Apple Pay and Google Pay no longer work, which means that people will be forced to rely on their local cards and, increasingly, on cash to meet their daily needs.
Meanwhile, retailers have reported a surge in sales of consumer electronics and durable goods as people rush to spend their savings before they are rendered worthless by inflation.
Decouple Their Economics
Russia will try to work with China to decouple their economies from the US Dollar, something the Chinese have long dreamt of. But that’s not going to be easy as China holds about US$3 trillion in US debt. Besides, the US is the largest buyer of Chinese products. Europe too buys Russian gas with dollars.
A Crypto Opportunity?
The situation could spur greater use of crypto currencies. Incidentally, Ukraine is among the world’s top three crypto mining countries in the world.
However, the biggest risk is what Putin will do when pushed into a corner with the economic sanctions. The chilling fact is that Russia enjoyed a massive advantage in low-yield nuclear weapons—the kind meant to be fired at short or intermediate range, as opposed to the huge, intercontinental missiles that raised fears of global nuclear annihilation during the Cold War. Last year, Brookings noted that Russia has some 1,900 such low-yield warheads, to the US’s 230; America’s arsenal is largely designed to be dropped from warplanes, whereas at least some of Russia’s can be mounted on shorter-range ballistic missiles۔
