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Comprehension Text for Nov 2020 (Winter) IIMU -NDPH-3rd year Term 2 Homework assignments
Almost overnight, Russia's $630b reserves have gone worthless (Part-1)
Mar 6, 2022, 21:09 IST
The Russian invasion of Ukraine has faced stiff resistance from the much smaller Ukrainian forces. How long the resistance will hold remains to be seen, but it has slowed down the advance of Russian forces. The fact that Russia can’t quickly take over all of Ukraine, is the first of two big miscalculations of President Putin. The other big error is underestimating the huge impact of economic sanctions, as has been eloquently described by Nobel laureate, economist and columnist Paul Krugman.
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After the annexation of Crimea in 2014, the world imposed some sanctions against Russia, which, however, was able to fortify itself against those sanctions. It reduced its foreign liabilities and dependence on import of goods and services, which were prohibited by sanctions. But this time the sanctions against Russia might work like precision bombing and can fatally wound the financial sector of Russia, and consequently the economy of Russia. This could happen even as Russia’s main exports, oil and gas prices reach sky high.
Those countries, who dare to buy oil from Russia, even if they are offered a big discount, run the risk of a boycott from America and its allies, and a cut-off from the international banking network. India has abstained from publicly condemning Russia via the United Nations resolution. India will also continue its trade links with Russia, but that is going to be increasingly difficult.
For instance, imagine that you are a shoe or a garment exporter to Russia. If the payment is made in dollars, then it has to be converted to rupees, and one leg of this transaction or clearing of this settlement has to be through a New York bank. Then the American authorities will be immediately alerted that some shoe seller is doing business with the Russians.
Even though, technically, the exporter from India is not violating any sanctions, since India has not signed up as part of the global alliance against Russia, the exporter can still face punishment. Or worse, the Indian bank which is handling the payment and settlement faces blacklisting in the US. Now, which Indian bank will want to take a risk of being blacklisted by the Americans? So most Indian banks will be reluctant to do any trade financing deal involving the Russians. This is self-censoring, or self-sanctioning, which can be widespread, as Krugman says.
Almost overnight, Russia's $630b reserves have gone worthless (Part-2)
