Do people who live in Russia keep a lot of money in a bank and/or as rubles, or do they keep it in something like USD/EURO and convert as needed? This drop is obviously extreme, but it's not like the Russian economy was great before.
What we learned from the Panama, Pandora, and Paradise papers is that wealthy individuals and corporations will find a way.
Am I wrong?
In the present case, where governments are highly incentivized and the sanctions are quite specifically targeted, I'd expect more of an impact. Will it be enough? I suppose we will see.
One challenge I've seen is that it isn't like all these assets are just labeled with the owners' names. As a result, it make take time to actually enforce such sanctions, possibly too much time to have an immediate impact. Perhaps the threat will be enough, but, again, we'll see.
You are correct in that it's difficult to sanction some oligarch using gray markets for one-off transactions.
But it's very easy to sanction a corporation that is trying to do cross-border trade. If you're selling apples to Poland, your customers - legitimate businesses in Poland - aren't going to be making recurring payments to you through some weird Hawala scheme. They live in Poland, they aren't going to be flouting their country's sanctions laws.
While oligarchs may be fine, the Russian economy can be completely strangled, by cutting off its ability to pay for imports, or get paid for exports.
This also pisses on any remittances the Russian diaspora sends to their relatives back home.
In the long term, I fully expect a proxy banking system to be set up through either China, or one of Russia's satellites, to take care of the needs of the elite. I also expect that the West will either shut down, or keep open particular Russian exports on a case-by-case basis. It's why not every Russian bank has been cut off from SWIFT. If Europe hits a cold snap for instance, there'd still be a channel to buy natural gas...
They’re theoretically going to be frozen, not seized.
More likely that it pushes south florida real estate prices even higher even faster. Just the perception and expectation should do that. Less units that could even be on the market.
It looks like we're talking about freezing assets and imposing travel bans. One would have to assume that the oligarchs in question are smart enough to have anticipated this and took preemptive measures to safeguard their assets. I would also guess that enough of their wealth has been held outside the reach of foreign entities to begin with.
What do these sanctions aim to achieve? Do we think that the oligarchs are going to turn on Putin? I am guessing that there is nothing they can do to depose him. That's an obvious source of danger for Putin and I am sure he has taken every precaution to ensure that the oligarchs cannot take him down, even with a unified front. We have to remember who we are dealing with here. Putin has proved himself to be a ruthless dictator. I bet he has agents in position to assassinate any one of these individuals at a moment's notice.
I also do not believe that economic sanctions are enough to stop a determined Russian government from waging war. Once again, sanctions would have been anticipated. One has to assume that Russia has taken measures to mitigate the potential impact ahead of the invasion. Even without preemptive stockpiling, I am guessing that Russia is not going to run out of resources needed to wage war anytime soon and even in the long term.
I have analyzed Russia's imports and exports and it looks to me that they are capable of surviving permanent economic isolation from the west, at least in terms running a war economy. Russia seems to be quite economically self-sufficient on that front. Its common imports with strategic value consist of industrial equipment and electronics. China, its biggest trading partner, will not stop providing these goods to Russia. I am not knowledgeable enough about the chip market or related goods like neon gas that was discussed here a few days ago. But once again, I would assume that Russia has plans for how to procure or manufacture military related hardware.
As for exports, yes, losing income from energy exports to the west will certainly hurt. But once again, there is no reason why more of those exports won't be shifted to China. With global demand slashed for Russian gas and oil, China should be able to buy these from Russia at very attractive prices. It would take a complex analysis to estimate how much Russian trade can be shifted to non-western partners but my gut tells me it would be a substantial amount.
There is no question that Russia's economy will contract without Western trading partners. But ultimately, who will this really hurt? I've been making the case that this will not materially impact Russia's ability to wage war in any way. If this was a serious weakness then Russia would not have invaded Ukraine to begin with. Logic would dictate that Russia has spent years preparing for this.
As for the day to day economy, I am not sure how much of a trickle-down effect this will have on your average citizen. Jobs will be lost but the energy sector is probably not doing much to enrich your average citizen beyond a source of income. Oligarchs will take a hit on personal wealth but I have already talked about how I do not believe they will be doing anything to overthrow Putin. My guess is that the loss of energy revenues will impact citizens most directly in terms of a potential contraction to social safety net payments.
My overall point is that I believe Russia can handle being plunged into a second Cold War from an economic perspective. Putin's actions indicate the desire and willingness to do so. It seems that Putin is hell-bent on restoring the Soviet Empire with him at the helm as Stalin 2.0. The Soviet Union collapsed because of the economic and bureaucratic failures of Communism. In Putin's view, both of these problems have been resolved. As an autocrat, he can pursue a consistent agenda for years to come. He is economically unhampered by the baggage of central planning and can rely on consistent future trade with what is soon to be the world's largest economy.
I was born in Ukraine and started school right after it gained it's independence. I still remember being taught propaganda about Lenin and the glory of the Bolshevik revolution in kindergarten. I feel terrible for the Russian people and hope that my countrymen will persevere for everyone's sake.
Your analysis on whether your opponent has made a mistake cannot assume that they are so smart they'd never make a mistake.
For one, many people in Russia barely can afford food, and many medicines are imported. Prices on basic food were increasing over the past year, and not with sanctins further rise is inevitable.
There could be food riots.
Its like a stock trader looking at the market, saying to himself 'if the stock was undervalued, it's future gainst would already be priced in by the efficient market, therefore no stock is ever worth buying"
why not? You assume they are perfect logical agents, capable of making any true deductions from known information. After all, this is what you'd do in chess.
The errors they could make are things like forced errors or deliberate misinformtion from the west.
This is business as usual in a currency crunch. Already happened twice in my memory (2008, 2014) - some people would panic-buy expensive items like plasma tvs. This is not indicative of some systemic collapse.
I guess Id they have loans they could close them? But wouldn’t it be better to wait to sell.
And it's certainly possible that fest drives some people to buy crap jewelry at high prices..
Liberal democracy is the weird historical aberration, I'm not sure that claims made from its perspective are as normative as you think. Given some political trends we're observing, and its poor overall track record in dealing with relatively simple crises (COVID), it's still too early to tell whether or not it can survive in the long term.
Seems like Russia feels it can get away with anything by threatening thermonuclear war. At some point, a line should be drawn.
After all, almost all countries had kings and dictators at some point, and eventually some got rid of them.
[1] Interestingly the French Declaration of the Rights of Man from 1789 includes the right of "resistance to oppression"
IMO we have probably just got rid of Putin and brought back Russian Communism.
Then you will have a Communist block with China that instantly has nuclear parity with the West.
Anyone with savings in rubles just had their savings turned to dust. I think we underestimate the power of financial weapons in the 21st century.
For example, oligarchs Italian villas
https://www.icij.org/investigations/pandora-papers/uk-target...
The rationale is that you cannot do both support a dictator and plunder your own people, and then enjoy the benefits of European lifestyle without European rule of law based justice.
What other kinds of justice are there? In Russia they do not have law based justice?
I agree it's a tad hard to parse
I feel like that addresses the Ruble.
>but that’s a pretty unusual thing to happen.
Is the larger point. If you can magic 8 ball your country's future with all certainty, then yes, it is a good idea. Otherwise it's just speculative investment with your actual savings?
Edit: previously I used the example USDC which you can argue can be controlled by Coinbase.
"They" didn't solve that problem, it is not the solution to all problems in finances. So, whats your point? Vaccines does not prevent 100% of infections, does that means that they are worthless?
Nirvana fallacy: https://en.wikipedia.org/wiki/Nirvana_fallacy
You said that the contract, i.e. the software, is immutable. This means that it can't be patched. If it can be patched it's not immutable, excepting semantic trickery like each version of the contract being immutable while what "the contract" points to can be changed in order to patch it.
I wanted to address that in the world of crypto there are stable assets pegged to some other FIAT if you want that.
Sorry if this becomes long but I need to explain my point of view. I live in a country that is not as authoritarian as Russia but is not a free economy like the US, people don't trust on FIAT and on banks because it had happened before that they took all our savings [1]. Even if this might seem like an isolated event, it happens every day. For example, if you work remote for a company abroad, the gov will exchange your USD on a wire transfer for the local currency and then not allow you to buy back USD. Our currency had a 60% of inflation last year.
I don't like the speculative aspect of crypto currencies, its volatility creeps me out. I wouldn't want to put my life saving on this. But I can see its value to circumvent corrupt governments and to make a free world. I do believe in humanity, the Putins are an exception and when you give people the opportunity to collaborate, most of them will choose to have a peaceful living.
Now, going back to your Turkish bonds vs DeFi. The difference is you can't buy those anonymously and at any point the gov. or exchange. They actually pay that much because no one wants to buy them, primarly because they don't trust they are going to pay that much. In a way, you can think of DeFi protocols are immutable math functions [2].
[1]: https://en.wikipedia.org/wiki/Corralito [2]: https://en.wikipedia.org/wiki/Decentralized_finance
So, yeah we can call it black market but I like the term “free market”.
https://en.m.wikipedia.org/wiki/Argentine_currency_controls_...
This automatically creates a “black market” of USD where the price is whatever the people are willing to pay, in the end the free market finds its way.
It is a market where prices are self regulated by supply and demand, without coercion. It perfectly suits for the exchange of of FIATs (or crypto) between parties.
You can call it whatever you want, anyways.
I recommend “Free to Choose” from Friedman as starting point.
"In a free market, the laws and forces of supply and demand are free from any intervention by a government or other authority other than those interventions which are made to prohibit market coercions. Examples of such prohibited market coercions include: economic privilege, monopolies, and artificial scarcities."
Further, a market in which fraudsters can commit fraud with impunity is also not a free market but a dysfunctional market.
At any rate, the notion of free market is only vaguely defined, as it's not an important theoretical construct in economics.
As far as crypto-currency markets are concerned, these are not a single market, but many different markets, some of which are heavily regulated, so it's hard to argue that it's a free market.
The cicle which I am most familiar with, goes by like this: gov destroys private enterprise and free economy thru regulations and expropriations, unemployment goes up and people gets dependent on hand outs, the remaining jobs bears all the costs. Unemployed sees gov are they gods, they will kept voting for them forever, even if they live in complete missery, it is all they have.
They become a “cyst”, it is very hard to go back.
You might think that any country controls their money supply, that’s a fact. But can Biden for example, double the monetary base with his sole signature?
People in those countries could have great aspirations, to have a fair system, a working democracy, a better government and all that… but don’t forget they also need to live in the meanwhile, while fixing all those problems.
I’m not a user of crypto currently, but I see it as a way of shifting power. Similar to what the internet did for information.
crypto ain't it
A) "non-state currency"
B) currency that "rival state-backed ones"
C) "solves problems"
One could argue cryptocurrencies don't solve any problem (good luck convincing Russians and Argentinians, but anyway). But they are "non-state" and they "rival state-backed" currencies.
In the soviet era, there was a period of political persecution focused on people suspect of having gold or hard currencies. People would be held indefinitely, and subject to harsh torture, until they let go of their assets. Good if you have some, worse if you actually don't. See Aleksander Solzhenitzyn, somewhere near the end of the first volume. And of course, the people torturing were part of the same organization that brought up Vladimir Vladimirovich Putler.
Using the middle name (unlike finger) is a high praise in Russia, though.
There's no reason to believe that it can handle the kind of pressure the ruble is facing.
Trust between trade partners is one of the most important element of an economy but for ideological reasons crypto-currencies enthusiasts believe that should instead be delegated to a protocol. I think it's a fundamental mistake.
Not to mention crypto can help the wealthy targets skirt sanctions.
On balance, given that we are dealing with a war of aggression and loss of life, I'm grateful for these tools. And, even to the extent it causes some pain for the Russian people, that further erodes support for the regime's unjust campaign and turns up the heat on them.
IMHO the most interesting change they did is to become self-sufficient regarding their food production, and even net exporter of wheat, corn, and other cereals. They correctly identified that was a risk and made necessary changes to reduce it to the point where they can leverage their position against other actors.
I think its more likely Putin is having to deal with a complex internal financial crisis which could affect Russian national stability. Putin may have something personal to gain from this, but there are bigger problems afoot if Russia descends into chaos. Something, mostly likely financial in nature, has happened to trigger the invasion into Ukraine. Raw access to resources?
So, whether a small portion of economic value is locked up on chain (or not) is unlikely to be relevant at this point.
> Trust between trade partners is one of the most important element of an economy but for ideological reasons crypto-currencies enthusiasts believe that should instead be delegated to a protocol.
Trust (assets) shared between trade partners which is not on-chain can be more easily manipulated as needed in a perceived crisis. We can see the US backed sanctions against Russia's interest are not being applied to Russian fuel exports, but instead target the wealth holder's stored assets. That implies a desire for control over the decision making process itself.
Cryptocurrency based assets would be more resistant to being influenced in this way and would limit the ability to manipulate the wealth holders, but only if their assets were on-chain.
I don't see how cryptocurrency changes this much, given the trust in raw assets relies on physical control of the asset, not a protocol that defines (or limits) how the asset is controlled.
It is in everyone's best interest this crisis in Russia and adjacent regions is addressed. How it is addressed, philosophically, is the real debate here.
I think he believe parts of his rhetoric. Of course the majority of what he communicates is posturing and lies but we can see recurrent themes in his speeches and articles. My understanding is that he really sees Ukraine as part of the Great Russia empire he wants to build and saw an opportunity to take action following events in the Western world from the past decade or so: instability in the US before and during Trump, Brexit and other fragmentation of Europe, NATO seen as weak and useless, US switching its focus to Asia instead of Europe, the way US left Afghanistan, rise of US and European isolationism, etc.
Regarding the ideology driving the Kremlin you can see those two Wikipedia articles: - the book "Foundations of Geopolitics ": https://en.wikipedia.org/wiki/Foundations_of_Geopolitics
- its author and "philosopher" Aleksandr Dugin: https://en.wikipedia.org/wiki/Aleksandr_Dugin
Those people aren't just cynical crony capitalists who want to make money for themselves. They have a clear fascist view of the world, with an ideal based on a "natural order" of the strong dominating the weak and dreams of a lost glory of the past. They developed a historical, spiritual, and political view of the world that defines their culture as the one that should dominate.
In the last month I have watched my crypto holdings fluctuate by something like 50%. There is no way in hell I would use crypto as a store of value for anything I cared about under those conditions.
What you are saying would be similar to: there's no way I would use the financial system, look how the futures exchange is volatile!
Just keep it in cash, then, but you don't have to ditch the entire system because parts of it are volatile.
Sure the smart ones use a stablecoin. But what about everyone else?
I imagine it would be a lot more convenient to have some hard currency at hand when fleeing a conflict zone. One might need to bribe border guards at some remote location with unreliable (or non-existent) internet connection, to get to safety.
Both are quite valuable tools to defend oneself. They have different balances between risk, convenience, liquidity, anonymity.
Because that is essentially what has happened now with the SWIFT sanctions.
Cutting off internet from outside world is much more drastic measure, highly unlikely to happen for a prolonged period of time.
Even if it does happen, you can still use telephone lines to connect. [1] [2]
[1] https://www.dw.com/en/european-activists-offer-dial-up-inter...
[2] https://www.france24.com/en/20110201-speak-to-tweet-egypt-tw...
aka stealing, war profiteering
I doubt very much that it would make any profit.
No, it's much worse. Collective Punishment is a globally-recognized war crime:
https://ihl-databases.icrc.org/customary-ihl/eng/docindex/v2...
The US and the EU are flagrantly violating the Geneva Convention and everyone I know is cheering it on. Absolutely sickening.
It seems any/many actions taken against an adversary will have knock-on effects of the population of the adversary, whether financial/economic or militaristic.
Does the focused nature of the sanctions thus far not change your calculus? Or is it SWIFT only that you're referring to? What about: banning private Russian flights from air space throughout Europe; FedEx refusing to make deliveries to Russia; Arming Ukraine to enable a quagmire, costing the Russian government several billions per day to sustain their effort, and harming their economic position; even broad and impactful tariffs could be seen as a Collective Punishment?
I'm having a hard time determining what actions are not a violation of the Collective Punishment ban under your generous interpretation, short of direct military conflict. I don't think incentivizing hot war was the intention of those rules. My understanding was that they are meant to apply to POWs and noncombatants under rule of a warring party.
What's your alternative to sanctions? Do nothing? Move NATO troops into Ukraine and start WWIII?
[1] https://www.axios.com/kharkiv-russia-ukraine-invasion-civili...
which is up for debate in this instance. I don't agree with you.
I do think the literal bombing of residences and hospitals, false flag operations, wearing the enemy's uniform, etc. etc. all constitute provable warcrimes which should be investigated. Not that I want to devolve into whataboutism, which I realize I'm skirting close to.
It's not up for debate. The Russian army acts on behalf of Russia. Therefore the whole of Russia is collectively responsible for the actions of the Russian army.
Though "floated" doesn't quite capture it - he apparently "explained" that this will be necessary and "reminded" that the government will have no choice but to "arrest" the savings of Russians to deal with the crisis. To a question of whether these funds will be repaid, he said that it'll take several generations to to do so, at which point it will all be eaten by an inflation.
They are all puppets, so it doesn't matter who said it exactly and in which context. It's the message that matters. And the message is chilling.
https://news.ru/economics/v-gosdume-prokommentirovali-vozmoz...
* fixed the typo, kudos to rob74