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US sanctions: freezing the dollar will break Russia

Congress and the state Department has promised Russia the new sanctions. The first package of restrictive measures will be introduced on August 22. He suggests a ban on the supply to Russia of weapons, electronic devices and other dual-use products. The second phase of the state Department promises after three months, if Russia does not give guarantees of non-use of chemical weapons and agree to independent verification of separate military facilities by UN inspectors.

In the second batch — reducing the level of diplomatic relations, suspension of direct flights to the United States, the restriction of export-import operations, etc.

The bill, proposed by a group of senators led by Lindsey Graham implies, in particular, a ban on transactions with the new Russian public debt and a ban on dollar transactions performed via correspondent accounts in the United States for Russian state-owned banks (Sberbank, VTB, VEB, Gazprombank, Rosselkhozbank, Promsvyazbank, Bank of Moscow).

The announcement of new sanctions provoked panic in the financial market. The sale of Russian securities, purchase of currency went active on Thursday and Friday last week. Monday, August 13, the dollar tested the level of 68 rubles, Euro was close to 78 rubles.

In addition, experts fear more radical steps by the us authorities. In November in the United States held midterm elections to Congress, and to score points on the Russian theme wants everyone, including the President of Donald trump.

“Theoretically, the United States may impose sanctions against the Bank of Russia, similar precedents in history have been — in particular, the blocked accounts of the Central Bank of Iran,” says the analyst of “Finam” Alexey Korenev. In the framework of the sanctions against Iran, which was in force at the time of signing the “nuclear deal” in April 2015, have been frozen the accounts of the national Bank, and a ban on transactions with Iranian credit institutions and to payments in dollars. However, even after the formal lifting of sanctions USA did not return to Iran $2 billion

There are other examples. In October last year, the Bank of New York Mellon voluntarily agreed to freeze $22.6 billion National Fund of Kazakhstan, which is controlled by the Kazakhstan national Bank.

Financial consultant Teletrade Mikhail Grachev believes that the U.S. sanctions against the Bank of Russia may lie in freezing the assets of Russian Central Bank and disconnected from international payment systems, hindering debt service.

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The experts believe that the Central Bank takes into account these risks. As explained “Газете.Ru” the head of the risk management practices Thornton FBK novel Konigsberg, the Bank of Russia is likely trying to minimize these risks, in particular by buying gold.

“Very right Bank of doing that is buying gold on the domestic market. Besides, the gold stored in Russia. Another thing is that you can buy gold only to a limited extent, since the purchase of a large volume simultaneously will raise the price and then the price will inevitably bounce back,” explains the expert.

Now, the Central Bank of more than 1.9 thousand tons of gold. The money is $77.4 billion, reported to the regulator on 1 August this year. Gold accounted for almost 17% of all reserves.

The U.S. Treasury could do to arrest or freeze funds of the government of Russia on the territory of the United States, as it were, for example, with assets of Iran, Libya, Syria and other countries, said the head of analytical management of BKF Maxim Osadchy.

“Not for nothing did the Central Bank has actively reduced in recent investments in us securities,” he adds.

Thus, according to the U.S. Treasury in March of this year, Russian bonds was $96,1 billion, but already in April were only $48.7 billion the may figure fell to $14.9 billion Is the lowest value in 11 years. And this is almost 12 times smaller than the peak of $176 billion recorded in October 2010. In General, ownership of foreign States are us bonds in the amount of $6,21 trillion.

However, experts still believe the U.S. decision on the freezing or seizure of our assets is highly unlikely.

Such arrest would inevitably lead to the conversion of Russia to international courts, which may revoke such a decision of the United States, says Alexey Korenev. To introduce such measures, we need a very good reason, they can be attributed to extraordinary and it is unlikely that most senators and congressmen will support them, he adds.

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“Sanctions against the Central banks from the United States is virtually unthinkable, as the world Central banks provide liquidity to the U.S. dollar, kitirua of the national currency against the USD. That would be tantamount to a shot in the foot”, — says Vladimir rozhankovsky, expert “International financial center”.

Thus, although the seizure of assets of the Bank of Russia, apparently, will not happen, the sanctions against Russian banks, experts believe it is highly plausible scenario.

In this case, Visa and Mastercard credit cards issued by state banks which have got under sanctions, will be blocked, and the banks would in fact be deprived of the opportunity to make cashless transactions in dollars, says Maxim Osadchy.

With almost 100% probability any such U.S. action will lead to a sharp collapse of the ruble. Outputs from the Central Bank to be a little — to let the ruble free fall with stop point far beyond 100 rubles or to impose exchange controls, which after some time can produce a shadow foreign exchange market.

“It is possible that given the dominance of state banks in the Russian banking market, the government will have to resort to extraordinary measures. For example, the freezing of deposits in foreign currency or conversion by forced unprofitable for investors to know, for example, as happened in Argentina”, — says Osadchy.

However, while it is not clear which of the proposed measures come to implementation. “It is unlikely that, for example, be a ban on payments in dollars for Russian banks or cancelled flights of “Aeroflot” in North America” — suggests Alexey Korenev.

These steps are not in the interests of American business, a transatlantic legislators hardly dares to pass laws that infringe on American companies with interest in Russia.

Experts are hoping for the best scenario. For example, Moscow has threatened to disconnect from the instant interbank payment system SWIFT (the global payment system) in 2014, but so far this threat has not been implemented, soothes rojankovsky.

However, in the opinion of Alexei Korenev, even if some part of the announced sanctions will be adopted, the Russian banking system will be difficult.

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