US slaps sanctions on Russia's central bank, threatens more action

The United States on Monday imposed sanctions on Russia’s central bank and other key sources of wealth, dealing a crushing blow to the country’s economy in further punishment of Moscow over its invasion of Ukraine.

The measures, which blocked Americans from engaging in any transactions involving Russia’s central bank, finance ministry and national wealth fund,are likely to push Russian inflation higher, cripple its purchasing power and drive down investments, U.S. officials said on Monday as the new measures took effect.

The move, which included a carve out for energy payments, comes after Washington last week imposed several rounds of sanctions targeting Moscow, including against Russian President Vladimir Putin and major banks, after the country’s forces invaded Ukraine in the biggest assault on a European state since World War Two.

“Our objective is to make sure that the Russian economy goes backwards if President Putin decides to continue to go forward with an invasion in Ukraine, and we have the tools to continue to do that,” a senior U.S. administration official said on Monday.

The measures were announced after the United States and its allies on Saturday said they would take action against the central bank and bar some of the country’s banks from the SWIFT international payments system, a list that officials said was still being finalized with EU partners. read more

The U.S. Treasury Department in a statement on Monday said it had also slapped sanctions on a key Russian sovereign wealth fund, the Russian Direct Investment Fund, its management company and its chief executive, Kirill Dmitriev, whom Washington accused of being a close ally of Putin.

Russia’s central bank more than doubled its key policy rate on Monday and introduced some capital controls as the country faced deepening economic isolation, but its governor said sanctions had stopped it selling foreign currency to prop up the rouble. read more

The U.S. official on Monday said that when Russia was planning its invasion of Ukraine, it was counting on being able to use their central bank’s assets to mitigate the impact of sanctions, and since Saturday’s announcement had been attempting to bring those assets back to Russia or safe havens.

Monday’s measures “immobilized” any assets Russia’s central bank held in the United States in a move that will hinder Russia’s ability to access hundreds of billions of dollars in assets.

“Putin’s war chest of $630 billion of reserves only matters if he can use it to defend his currency, specifically by selling those reserves in exchange for buying the rouble,” a second senior administration official said.

“After today’s action, that will no longer be possible and ‘Fortress Russia’ will be exposed as a myth.”

Mark Sobel, a former senior Treasury official who serves as the U.S. chairman of the OMFIF forum for central banking, economic policy and public investment, said the action was a “tremendous example of Western unity.”

“This all happened overnight, and the force of it basically cut off a significant country from the global financial system overnight. And there’s no precedent for that,” Sobel said.

ENERGY SUPPLIES

The Treasury issued a general license alongside Monday’s action authorizing certain energy-related transactions until June 24.

President Joe Biden’s administration has been concerned that its sanctions could raise already high gas and energy prices and has taken steps to mitigate that.

The U.S. officials said Washington would continue to tailor its measures against Russia to limit the impact felt at home and allow for steady energy supplies to global markets.

They also warned that the United States would not hesitate to impose more consequences on Russia and was actively exploring measures that would cut off Russia from critical technologies it needs to remain a major energy producer in the longer term, citing similar steps already taken by the European Union.

They said Washington was also watching Belarus’s involvement closely, adding that the strong Russian ally could face more punitive action if it continues to aid Moscow in the invasion.

“These are serious consequences for Russia’s unprovoked invasion of Ukraine and we won’t hesitate to level more if necessary,” the first official said.