US imposes sanctions on Russian central bank

The Treasury Department on Monday banned transactions with the Central Bank of Russia and the Russian foreign investment fund, imposing strict financial sanctions on a Russian economy already in free fall. 

The new penalties effectively cut the Russian central bank from the U.S. dollar and severely limit Russian President Vladimir Putin’s ability to dampen the blow of previous sanctions. 

U.S. individuals and businesses are now unable to make any financial transitions with or on behalf of the Central Bank of the Russian Federation, National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation. The sanctions also ban any foreign financial firm from sending U.S. dollars to the Russian central bank, finance ministry and wealth fund.

The Treasury Department said it would make exceptions for certain energy-related payments in a bid to prevent a sharp spike in global oil and natural gas prices. But U.S. officials said Monday the new penalties would still push the Russian economy deeper into a collapse they blame on Putin’s invasion of Ukraine.

“Our strategy, to put it simply, is to make sure that the Russian economy goes backwards as long as President Putin decides to go forward with his invasion of Ukraine,” said a senior Biden administration official on a call with reporters.

The U.S. and Western allies announced Saturday they would target more than $600 billion in reserves held by Russia’s central bank — which they described as Putin’s war chest to stave off sanctions. The announcement of pending sanctions alone caused the ruble to drop more than 30 percent against the dollar Monday and prompted the Russian central bank to hike its baseline interest rate.

Freezing Russia’s foreign reserves will prevent the country bolstering the value of the ruble by selling the currency of other nations. As the value of the ruble plummets, Russians will face severe challenges affording food and other basic necessities. The new penalties could also limit Russia’s ability to stabilize major banks after they were cut off from the global financial system in previous rounds of sanctions.

“This is a vicious feedback loop that’s triggered by Putin’s own choices and accelerated by his own aggression. It’s a very raw deal Putin is giving to the Russian people, as the world’s disconnects Russia from the global financial system and all its benefits,” said a senior Biden administration official.

The central bank sanctions are the latest and most significant step in an unprecedented campaign to derail the Russian economy and force Putin to reconsider the domestic consequences of attacking Ukraine.

Despite initial wariness among European nations, the U.S. and its allies have largely locked Russia out of the global financial system and international commerce with few exceptions for the energy sector and humanitarian aid. Even Switzerland, which has historically remained neutral in geopolitical conflicts, is poised to freeze Russian assets held in its banks.

While the U.S. has imposed similar sanctions on North Korea, Venezuela and Iran, there is no precedent for so many countries imposing such strict penalties on an economy the size of Russia’s. Economic and financial experts warn Russia could respond with its own limits on oil and natural gas exports, which could cause energy prices to spike after years of rising energy costs across the world.

Updated at 8:59 a.m.