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Monday, 19 October 18:58 (GMT -05:00)



Foreign exchange market

U.S. Sanction Trap For Russian Rouble


It's not a secret that the amount of sanctions against Russia has been growing over the last few years. At the same time, experts are losing faith in the stability of the Russian Rouble. Washington is discussing more and more variants to impose even more sanctions on Russia to undermine its economy and national currency. 
 
Not so long ago, American senators introduced a new draft to the Congress. The draft is called DETER. It looks more specific and tougher than DASKA-2019. It seems that the Russian financial system may be hit harder this time. Still, some experts say the Congress is unlikely to approve this draft the way it it right now.
 
American legislators are trying to secure elections. They already introduced a draft called "Defending Elections from Threats by Establishing Redlines, DETER Act". More specifically, the ultimate goal of the draft law is to prevent foreign governments from intervening into American elections. They say, this one is mostly targeted at Russia. However, the list of potential threats includes North Korea, China, and Iran.
 

The draft law implies sanctions against Russia's energy, banking, defense sectors, as well as its sovereign debt. Sanctions may also be imposed on certain banks - VTB, Gazprombank, Sberbank, Rosselkhosbank, and Vnesheconombank. Those boil down to forbidding business relations with those banks in the U.S. jurisdiction for American citizens. They say that the sanctions are going to destabilize Russian financial markets.
 
Russian analysts say DETER is not a brand new project. This is the second version fo the same draft law introduced in 2018. 
In January 2018, they introduced the initial version of the draft law. Russian experts called it the worst initiative. It implied sanctions against Russian oil-and-gas companies. The new version doesn't mention those companies, which increases the chances of passing the bill. They decided to ban the investments in the Russian energy and banking sectors instead. Moreover, the new bill focuses on the Russian sovereign debt. So, experts say that DETER can be compared to DASKA-2019 introduced in February 2019.
 
All in all, DAKSA leaves more space to maneuver while DETER has more specific targets. However, Russia doesn't care much which one of them is going to be implemented since any of them may have serious consequences for the Russian economy.
 
In the meantime, NordFX experts report that the Russian Rouble is trading around 65,5 RUB per USD. They say that the likelihood of the draft law to be approved is 20-35 percent. If they cut some of the corners, the likelihood will likely increase up to 50%. Still, if the sanctions are imposed on Russia, the Russian Rouble may drop down in value, probably to 75 RUB per USD. In this case, the interest rate may turn double-digit. So, the best option for Russians is to diversify their savings to store them in multiple currencies.

 

 

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