On Monday, February 21, President Putin signed a decree that recognizes Donetsk and Luhansk, two pro-Russian separatist territories in Ukraine, as independent republics – the Donetsk People’s Republic and Luhansk People’s Republic.
These territories have not been fully under Ukraine’s central government’s control since 2014, but neither have they been officially recognized by any country until now. On late Monday, President Putin ordered the Russian Defence Ministry to dispatch troops to these regions in what they term to be “peacekeeping functions”.
On Monday, February 21st, through February 22nd, the Russian rouble hit a nearly 15-month low amid the tensions with Ukraine and the recognition of the independence of Donetsk and Luhansk. The rouble tanked on Monday and experienced the sharpest one-day drop since March 2020.
The rouble went below 80 against the dollar, appeared to be recovering, but a new round of sanctions seems to have caused another drop on Wednesday, February 23. The drop came amid the announced sanctions by the US, the EU, and other countries, and Germany stopping the certification of the Nord Stream 2 pipeline.
The sanctions by the US will target two large Russian banks (Vnesheconombank and Promsvyazbank Public Joint Stock Company, which hold more than $80 billion in assets combined) and Russia’s sovereign debt, as well as bar new trade, investment, and financing by persons in the US in Luhansk and Donetsk.
“That means we’ve cut off Russia’s government from Western finance,” president Biden said.
President Biden and other U.S. officials have stated that they could implement harsher and more restrictive financial sanctions and penalties if Russia’s actions continue threatening Ukraine’s territory. The specifics of the potential further sanctions have not yet been announced.
The EU has also announced an initial round of sanctions against 351 Russian legislators that voted for recognizing the independence of Luhansk and Donetsk, in addition to 27 other Russian officials and institutions.
“This package of sanctions . . . will hurt Russia and it will hurt a lot,” said Josep Borrel, High Representative of the European Union for Foreign Affairs and Security Policy.
The United Kingdom, Australia, and Japan have also instituted sanctions against Russia. On Tuesday, the UK imposed sanctions on three Russian businessmen and five banks. Prime Minister Boris Johnson stated:
“This is the first tranche, the first barrage of what we are prepared to do, and we hold further sanctions at readiness to be deployed.”
On Wednesday, Australia announced that it would impose sanctions on two Russian banks and ban travel for eight members of Russia’s Security Council. Prime Minister of Japan, Fumio Kishida, stated on Wednesday that Japan will ban issuing and distributing Russian government bonds; Japan will also ban trade with Luhansk and Donetsk, alongside banning travel and freezing the assets of people connected with the territories.
How the sanctions currently in force and potential new sanctions will affect the Russian economy and the rouble cannot be predicted. The Russian rouble is traditionally a volatile currency, and the political and economic instability that could follow as this conflict unfolds is likely to add to the volatility.
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