Thread by @mafevema

Very interesting piece in @ft on the effects of the sanctions on the Russian Central bank & the SWIFT ban.
1.foreign exchange reserves are a key pillar of Russia's economic strength. The western allies are attempting to undermine its ability to tap the stockpile

2.A large chunk of Russia's foreign exchange stockpile is held overseas in the US, Germany, France, UK, Austria and Japan.(see right graph)

3. Withour access to the FE reserves, the CBR will be hamstrung in its ability to defend the rouble. It could eventually lead to bank runs. Russians have already been flocking to banks to withdraw cash

4. Russia has some protections:
- record-high $19bn current account surplus
- earnings of foreign exchange via oil & gas sales,which should support the economy & help pay for imports (far trickier due to sanctions)
- propping up domestic lenders by offering rouble liquidity.

5. However to prevent the rouble collapse without access to most of its reserves, CBR would be left with only 2 clear options: raising interest rates & capital controls.

6. CBR may seek help from China, where more than 14 per cent of its foreign exchange reserves are held — the biggest single foreign share. But unclear it will be provided: Chinese banks fear secondary sanctions that would cut off access to dollars and euros.

7. CBR could also try to sell a chunk of its 2,299 tonnes of gold (held in Russia), the 5th largest stockpile in the world or Yuan reserves (held in China) to friendlier governments.But according to analysts, not straight forward essentially due to fear of secondary sanctions

8. The direct exposure of western financial institutions to Russia is relatively modest. That said, Europe in particular is heavily exposed to Russia’s enormous oil and natural gas production which plays a significant role in European natural gas markets.

9. SWIFT ban for some key Russian banks makes it more difficult for Russians to make cross-border transactions. However it is likely that energy-focused Russian banks will be allowed to remain on the network.

CONCLUSION:these, on top of the financial sanctions & those on a very large number of individuals already announced, are a substantial problem for Russia. Hence the furious reaction of Putin placing nuclear on high alert. The key is now to focus on enforcement

The transatlantic committees set up to monitor this is very good news.
Democracies will also pay a price. The key will be to keep public opinion on board despite Russian propaganda, directly or through Russia's mouthpieces such as @TuckerCarlson @Nigel_Farage @MLP_officiel, etc.

The @ft piece ‘A global financial pariah’: how central bank sanctions could hobble Russia - on.ft.com/3plzWlg via @FT