Academician of the Russian Academy of Sciences
February 25, 2022, 11: 47
"It would be childish to assume that " when we are beaten, we grow stronger." Although we have indeed strengthened national sovereignty in the economic sphere under the influence of US sanctions, but not to such an extent that we do not pay attention to them at all. The damage caused by sanctions, of course, exists and is significantly enhanced by the passive policy of the monetary authorities."
Permanent intimidation of Russia with new "infernal" sanctions has long ceased to excite Russian public opinion. I remember how in 2014 I, along with other first persons subject to US sanctions, were interviewed and we all assured journalists that we were proud of such recognition of our services to Russia. Since then, the number of individuals and legal entities sanctioned by the United States and its satellites has increased many times and has not had any noticeable impact on our country. On the contrary, the retaliatory measures introduced by our government in terms of restricting food imports from these countries significantly contributed to the growth of domestic agricultural production, which almost completely replaced the import of poultry and meat. Defense and energy companies have learned how to circumvent these sanctions by abandoning the use of the dollar, and at the same time of American banks in favor of national currencies and banks of partner countries. The next step is the development of digital currency instruments that can be used without resorting to the services of banks that are afraid of being sanctioned. The people are following with interest the return to the country of the capital taken out by the oligarchs and themselves, who are afraid of confiscation and arrests in NATO countries.
US sanctions have affected not so much Russia, but third countries that have come under pressure from Washington. First of all, our European neighbors, who have curtailed most of the cooperation projects in the scientific, technical and energy spheres. They also affected Chinese commercial banks operating in the dollar zone, which preferred to stop servicing Russian customers. Russia's trade turnover with the EU and the US has naturally declined, while with China it has grown. In the period 2014-2020, in monetary terms, Russia's trade turnover with China increased by 17.8% from $ 88.4 billion to $ 104.1 billion. The share of APEC and SCO countries in the external trade turnover of the EAEU increased from 29.6% to 36.4% and from 16.3% to 24.1%, respectively. The EU's share in the EAEU's external trade turnover, on the contrary, decreased from 46.2% in 2015 to 36.7% in 2020. The trade turnover with the United States during the period under review decreased by 18.1% from $ 29.1 billion to $ 23.9 billion.
In fact, with the help of sanctions, the United States is trying to oust Russian goods from the markets of its satellites, replacing them with its own. This has been most pronounced in the European natural gas market, where the US share has increased sharply, although it has not yet succeeded in squeezing Russia out of the European natural gas market.
The main result of the US-European sanctions was a change in the geographical structure of Russian foreign economic relations in favor of China, the expansion of cooperation with which fully compensates for the curtailment of trade and economic relations with the EU. European consumers have to switch to more expensive American energy sources, and manufacturers simply lose the Russian market. The EU's total losses from anti-Russian sanctions are estimated at $ 250 billion.
Another important result of the US sanctions was the fall in the dollar's share in international payments. For Russia, as for other countries that have been subject to US sanctions, the dollar has become a toxic currency. By tracking all dollar transactions, punitive authorities in the United States can block payments, freeze, or even confiscate assets at any time. For 8 years after the introduction of sanctions, the share of the dollar in international settlements decreased by 13.5 percentage points (from 60.2% in 2014 to 46.7% in 2020).
Sanctions have become a powerful incentive for switching to payments in national currencies and developing national payment systems. Thus, in the mutual trade of the EAEU member states, the share of the dollar decreased by more than 6 percentage points (from 26.3% in 2014 to 20.0% at the end of 2020).
I remember how ten years ago, when discussing the risks to the Russian banking system at the National Banking Council, I asked the then head of the Central Bank: "Is the risk of disconnecting Russian banks from the international system of transmitting bank messages SWIFT considered, as Western partners did in relation to Iran?" To which I received an answer: "We cannot consider the risk of an atomic bomb hitting the Bank of Russia." Measures, however, the Central Bank's management has taken — today Russia has its own system for transmitting electronic messages between banks — the Bank of Russia's Financial Message Transmission System (SPFS), as well as its own Mir bank card payment system, which is interfaced with the Chinese Union Pay system and can be used for cross-border payments and transfers. Both of them are open to foreign partners and are already widely used not only in domestic, but also in international settlements. Disabling SWIFT is no longer considered a large — scale threat-it will benefit the development of our payment and financial information systems.
It would be childish, however, to assume that "when we are beaten, we grow stronger." Although we have indeed strengthened national sovereignty in the economic sphere under the influence of US sanctions, but not to such an extent that we do not pay attention to them at all. The damage caused by sanctions, of course, exists and is significantly enhanced by the passive policy of the monetary authorities. Since 2014, when, with the connivance of the regulator, currency speculators through market manipulation brought down the ruble exchange rate, the latter is used by the sanctions as a fail-safe fuse for macroeconomic stability. At the same time, it was in 2014, on the eve of the already announced US sanctions, that the Bank of Russia switched to a free-floating exchange rate regime. And only after that, the US introduced them, being sure that speculators would multiply their negative effect. When the ruble nearly halved in value, Obama said with satisfaction that "the Russian economy is in tatters." As a result of this manipulation of the Russian foreign exchange market, ruble incomes and savings were devalued, and speculators received more than 35 billion rubles.usd of profit. But this happened not because of sanctions, but because of the connivance of the Bank of Russia, which gave exchange rate formation to international speculators on the recommendation of Washington financial organizations.
Only very naive people can believe in the formation of an equilibrium exchange rate of the ruble in free floating mode. The Bank of Russia's self-exclusion from regulating the ruble exchange rate means that international currency speculators are doing this. As the ruble, which has become one of the most volatile currencies in the world with a 3-fold supply of foreign exchange reserves, is swaying, international speculators are making multibillion — dollar profits, while Russians are seeing their ruble savings and incomes depreciate along with surges in inflation. At the same time, the investment climate is hopelessly deteriorating — the instability of the ruble exchange rate creates uncertainty in the main parameters of investment projects that use imported equipment and are focused on exporting products.
Thus, the damage caused by US financial sanctions is inextricably linked to the Bank of Russia's ideal monetary policy. Its essence boils down to a strict binding of the ruble's issue to export earnings, and the ruble exchange rate to the dollar. In fact, an artificial shortage of money is created in the economy, and the strict policy of the Central Bank leads to an increase in the cost of lending, which kills business activity and hinders the development of infrastructure in the country.
Sanctions restrictions have led to an extremely high demand for corporate financing in the domestic market. Against the background of a relatively low key rate and access to cheaper funding, large banks consistently maintain a net interest margin above the market average: 5.4-6%, while for the largest banks in China, the United States, Germany, France, Great Britain and Japan, the net interest margin ranges from 0.8% to 2.3%. However, these windfalls are not used to finance infrastructure projects, but rather to acquire disparate non-core businesses that are integrated into ecosystems. Most of these businesses remain unprofitable even at the EBITDA level. Despite this, billions of rubles are still spent on their development. These figures are quite comparable to the volume of investments in a large infrastructure project in the real sector of the economy, which can bring both job growth and contribution to the development of the economy. But such projects (as well as filling the budget) are still left to raw materials companies, while the largest financial corporations prefer to direct their income to creating chimeras.
In fact, it was the connivance of the Central Bank that led to the fact that Russia, its industry, was drained of blood and unable to develop.
If the Central Bank fulfilled its constitutional duty to ensure the stability of the ruble — and it has all the opportunities to do this due to the 3-fold excess of foreign exchange reserves of the monetary base-then financial sanctions would be harmless for us. They could even be turned around, as in other sectors of the economy, for the benefit of the banking sector, if the Central Bank replaced the loans withdrawn by Western partners with its own special refinancing tools. This would increase the capacity of the Russian credit and banking system by more than 10 trillion rubles, and it would fully compensate for the outflow of foreign investment financing, preventing a drop in investment and economic activity without any inflationary consequences. This would avoid a long period of decline in real incomes of the population caused solely by the peculiarities of the monetary policy pursued in Russia, which ensured the effectiveness of sanctions in the monetary and financial sphere.
Assessing the consequences of anti-Russian sanctions, one cannot ignore the consequences of severing economic ties with Ukraine. The mutual cancellation of the free trade regime and the introduction of an embargo on a wide range of goods led to a break in cooperation ties that ensured the reproduction of many types of high-tech products. Blocking the work of Russian banks resulted in the depreciation of multibillion-dollar Russian investments. The refusal of the Ukrainian authorities to service their debt to Russia caused several billion dollars more losses. In total, their volume is estimated at about $ 100 billion for each of the parties. This is really significant and in many ways irreparable real damage, which we ourselves have aggravated with retaliatory sanctions.
To date, the economic consequences of the anti-Russian sanctions have been summarized as follows. The biggest losses relative to GDP were suffered by Ukraine, in absolute terms-by the European Union. Russian losses of potential GDP, starting from 2014, amount to about 50 trillion rubles. But only 10% of them can be attributed to sanctions, while 80% of them were the result of the current monetary policy. Anti-Russian sanctions benefit the United States, which replaces the export of Russian hydrocarbons to the EU, as well as China, which replaces the import of European goods by Russia. We could completely mitigate the negative consequences of financial sanctions if the Bank of Russia fulfilled its constitutional duty to ensure a stable ruble exchange rate, and not the recommendations of Washington financial institutions.
Consider the threats of American and European Russophobes against the new "infernal" sanctions. It was already mentioned above that the threat of disconnecting Russian banks from the SWIFT system, which is widely discussed in the media today, although it will interfere with international payments at first, will benefit the Russian banking and payment system in the medium term.
The threat to ban operations with Russian bonds will also benefit us, since their issuance in a budget surplus is nothing more than a source of profit for foreign speculators. And their profitability is overestimated three times in relation to the market assessment of their riskiness. Ending the Samoyed policy of the monetary authorities, who are borrowing money that is objectively unnecessary for the budget at three times the price, will allow us to save billions of dollars. If the sanctionists try to prohibit the purchase of foreign currency bonds of Russian corporations, it will be possible to compensate for the lack of financing for the purchase of imported equipment by buying them back at the expense of part of the excess foreign exchange reserves. If they are cut off from foreign loans, the risk of their default will fall on the European and American banks themselves.
There is also the potential risk of seizure of Russian state assets. But we can respond to this symmetrically by imposing an embargo on servicing debt obligations to Western creditors and also seizing their assets. The losses of the parties will be approximately equal.
There remains, in fact, one threat — to take away foreign assets from Russian oligarchs. Despite its popularity among the common people, it encourages the return of capital exported from the country, which will also have a positive effect on the Russian economy.
At the same time, we need to protect ourselves as much as possible from the expected escalation of US-European sanctions. The most vulnerable place for our economy is its excessive offshorization. Up to half of the Russian industrial assets are owned by non-residents. There are more than a trillion dollars of capital exported from the country abroad, half of which is involved in the reproduction of the Russian economy. The simultaneous freezing of these assets can indeed dramatically worsen the situation of a number of strategically important enterprises that are dependent on the external market. The Americans showed how this is done using the example of Rusal, establishing their control over it under the threat of stopping foreign trade activities. We could respond to this by nationalizing at least the giant hydroelectric power plants transferred to this corporation for a song and on dubious grounds, on the operation of which the lion's share of its profits is based. But for some reason, we did not protect this one of the structure-forming sectors of our economy from the raider takeover by the US Treasury.
It follows from the above that effective measures are needed to effectively deoffshorize the economy, as well as to bring the Bank of Russia's policy in line with its constitutional responsibilities. Measures to tighten currency regulation in order to stop the export of capital and expand targeted lending to enterprises in need of financing investments and working capital will also not be hindered. It is advisable to introduce taxation of currency speculation and transactions in dollars and euros on the domestic market. We need serious investments in R & D in order to accelerate the development of our own technological base in the areas affected by sanctions — first of all, the defense industry, energy, transport and communications. We need to complete the de-dollarization of our foreign exchange reserves, replacing the dollar, euro and pound with gold. In the current context of the expected explosive growth in the price of gold, its mass export abroad is akin to high treason and it is high time for the regulator to stop it. We need to introduce a digital ruble as soon as possible, which could be used for cross-border payment and settlement operations, bypassing the banking system that is subject to sanctions pressure. We should hurry up with the creation of our own exchange space and mechanisms for ruble pricing for the raw materials produced in our country in excess. Invite partners in Asia to introduce a global payment and settlement currency based on the index of national currencies and exchange-traded commodities. It is possible to unilaterally lift sanctions from Ukrainian enterprises, while at the same time easing the situation of the Russian population employed in them. It may be possible to once again launch the single Economic space initiative from Lisbon to Vladivostok, encouraging a healthy part of the European business and political elite. Try to create a broad international coalition to restore the norms of international law, including those of the WTO and the IMF, which Western sanctions officials are shamelessly violating with their sanctions and trade wars.
In general, much remains to be done to strengthen national sovereignty in the economy. US sanctions are the agony of the outgoing imperial world order based on the use of force. To minimize the dangers associated with it, it is necessary to accelerate the formation of a new — integrated - world economic order that restores international law, national sovereignty, equality of countries, diversity of national economic models, and the principles of mutually beneficial and voluntary international economic cooperation.
Machine translated and corrected by @QuantumBird.