Sanctions could plunge Russia into financial crisis and depression: NPR


A major financial crisis can be devastating for a country. Banks go bankrupt, businesses go bankrupt and people lose their jobs. Sanctions against Russia could tip the country into this kind of economic collapse.


A major financial crisis can be devastating for a country. Banks go bankrupt. Businesses go bankrupt. A large number of people lose their jobs and the economy is dragged into a downward spiral. Could sanctions against Russia tip the country into this kind of economic collapse? NPR’s Chris Arnold examines what could happen.

CHRIS ARNOLD, BYLINE: Ken Rogoff is a world-renowned economist at Harvard who has spent his career studying financial crises. He also has many relatives who emigrated from Ukraine and he spent time in Russia.

KEN ROGOFF: I was a professional chess player. I played, in my time, all the Russian world chess champions.

ARNOLD: Rogoff is basically saying a game of chess is being played right now. And since the United States and its NATO allies do not want to enter into a fire war with a nuclear-armed Russia, financial sanctions are the pieces in play. And he says that measures to sanction at pretty much all of the Russian financial system were fast and mighty.

ROGOFF: The sanctions they imposed were very cleverly designed to try to cause as much damage as possible to the Russian economy and as little damage as possible to the European economy and the rest of the world.

ARNOLD: Russia had amassed hundreds of billions of dollars in foreign currency reserves, a financial war chest, basically to try to protect the economy from sanctions. But the sanctions – they practically blew up that war chest. Severe restrictions on Russia’s central bank have cut off access to much of this money, and Russian banks are largely locked out of the global financial system. This has never been done to a world power like Russia, and it has caused the value of its currency to plummet.


UNIDENTIFIED REPORTER #1: Russian citizens flocked to banks and ATMs before the country suffered widespread cash shortages.

UNIDENTIFIED REPORTER #2: Russian ruble falls to record lows.

ARNOLD: The giant oil companies Exxon, Shell, BP – they’re all saying they’re pulling out of Russia. A huge shipping company stops container ships going to and from the country. So could Russia be dragged into a truly devastating financial crisis and depression?

ROGOFF: We definitely have the ability to make that happen.

ARNOLD: But Rogoff says it would hurt ordinary people in Russia more than Putin, and it could take more than a year to materialize. So…

ROGOFF: There’s a question of how much pain we’re trying to cause. We try to thread the needle.

ARNOLD: Thread the needle, he says, because more sanctions could also incite Russia to lash out and deepen the crisis. Furthermore, to go further and say blocking oil and gas exports from Russia would also harm NATO countries. But probably the biggest factor at play is that it usually takes a long time for sanctions to bear fruit and get a country to change its ways, and Ukraine doesn’t have that long.

DANIEL FRIED: It all depends on the battlefield.

ARNOLD: Daniel Fried is a former US undersecretary of state who coordinated sanctions after Putin sent troops to Crimea in 2014. He says that in the short term, sanctions alone cannot force a dictator to change of cap.

FRIED: If Putin thinks he can win, he will conquer all of Ukraine or decapitate the government and put on a puppet.

ARNOLD: But he says if the Ukrainians continue to fight with such heroic resistance and so many countries across Europe and the world continue to move away from Russia, further isolating it, then even in the short term , there is a chance that economic sanctions could help push Putin back down.

FRIED: They show Putin that the West is not as weak and divided as he assumed. They show his people that there are consequences to what Putin does, unpleasant consequences. They show Putin’s ruling elite that he is taking them to a very dark place.

ARNOLD: Other former officials also say that weakening Russia with sanctions taken down the road prevents Putin from attacking other countries, but that does not help the Ukrainians who are currently facing Russia on the field of fight alone. Chris Arnold, NPR News.

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