Financial War: Can Russia Be Excluded From the Global Economy…

●      SWIFT: The US, European Commission, France, Germany, Italy, the UK, and Canada removed Russian banks from SWIFT

     ○      SWIFT is used by banks for cross-border payments

     ○      Used by 11,000 financial institutions across 200 countries

     ○      Some Russian banks were excluded to allow continued European imports of oil and natural gas

●      Foreign Reserves: The US, European Commission, France, Germany, Italy, the UK, and Canada froze Russian foreign reserves in their jurisdictions

     ○      Russia holds $630 billion in reserves

     ○      In January 2022, about half of reserves were held abroad in commercial banks and foreign central banks

●      Banking Restrictions: US expanded sanctions on Russian sovereign debt and financial institutes

     ○      Restricted US-based purchases of Russian bonds

     ○      Banned Russia’s largest bank (Sberbank) from most transactions with US dollars, with exceptions for energy transactions

     ○      Blocked Russia’s 2nd largest bank (VTB) and 3 other financial institutions from accessing US-based assets and participating in any US transactions

●      Export Restrictions: The US imposed restriction on exporting some technology to Russia and Belarus — Including tech that would aid

     ○      Intelligence services

     ○      Defense industry

     ○      Oil drilling and refining

●      Oil Imports: The US banned imports of Russian oil and natural gas - The UK pledged to phase out Russia oil and gas imports by the end of the year

     ○      The EU currently gets 10% of its oil and 33% of its natural gas from Russia

     ○      If the EU joins in banning energy imports, Russia’s economy could contract more than 20% in 2022

●      How Are These Sanctions Different?

     ○      Sanctions have been levied on entities once considered out-of-bounds

■      Major russian banks

■      Secondary capital markets

     ○      Past sanctions have focused on the Kremlin’s behavior, rather than hurting the broader Russian economy - Now, that’s changed

●      U.S. Companies Suspend Operations In Russia

     ○      Following the official sanctions, many large US companies suspended their operations in Russia

■      McDonald’s, Coca Cola, Disney, Papa Johns, Microsoft, Google, Netflix, Nvidia, Oracle, VMWare, SAP

■      Apple and Google closed a loophole that allowed some Russians to continue using their payment apps despite sanctions

■      Visa and MasterCard blocked international payments from Russian cards and vice versa

■      BP announced it will dump its 20% stake in Russian oil giant Rosneft

     ○      US companies attempting to continue business operations in Russia cannot send capital into the country or take profits out

If sanctions continue, projections estimate Russia’s economy will contract up to 15% in 2022

How Do Sanctions Work?

●      Sanctions are economic penalties against a country or person

     ○      May be used as punishment or to disincentivize certain actions

●      Possible sanctions include

     ○      Travel bans: Sanction country will not accept visitors from target country - may include officials, citizens, and immediate family

     ○      Import/Export controls: Ban specific products, services, and intellectual property - such as weapons or military tech

     ○      Trade embargo: Broad ban on trade with a target country, may include exceptions for food and medicine

     ○      Asset seizures: Assets held within the sanctioning country’s jurisdiction can be seized or frozen to prevent sale or withdrawal

     ○      Capital controls: Restrict investment in target country, industry, or block access to international capital markets

●      Why use sanctions?

     ○      Non-military option to influence geopolitical events

     ○      Applicable beyond the enforcing nation’s borders

●      Sanctions can be ineffective

     ○      Must be applied aggressively to prompt change in actions

     ○      Often affect vulnerable populations more than target government

●      The Power Of The Dollar

     ○      The US has more power to levy sanctions than any other nation

■      90% of all currency trades involve dollars

■      59% of global foreign exchange reserves are held in US dollars

■      Half of all international trade is done in USD

■      Half of all global bonds and loans must be paid in USD

     ○      Access to the US dollar is essential to functioning in modern global markets

■      Nations around the world hold a portion of foreign reserves in dollars, giving the US jurisdiction to levy sanctions

Russia is deeply integrated into global markets - sudden economic isolation may have huge consequence around the world

Cryptocurrency (USDT) / Ruble (RUB) trading volume rose to an eight-month high with 1.3 billion rubles traded for crypto on march 1, 2022

The Impact Of Sanctions At Home & Abroad

●      The Effects Of Sanctions In Russia

     ○      After sanctions were announce, ruble fell 30%, spurring a run on banks

■      By the end of march, rubles had rebounded to roughly the same as before sanctions

     ○      Russia has taken aggressive actions to stabilize its currency in face of sanctions

●      Russia raised interest rates from 9.5% to 20%

●      Blocked Russians from sending money abroad

●      Halted interest payments to foreign holders of sovereign debt

●      Forced every Russian firm earning USD to exchange 80% for rubles

■      These measures are unlikely to be sustainable long term

     ○      In response to sanctions, Russia stripped intellectual property rights from all US companies, along with 23 other nations

■      In the first week, Russian trademarks were filed imitating Ikea, Instagram, McDonald’s, Starbucks

     ○      Russia turns to gold

■      Citizens concerned about depreciating value of ruble began investing gold and other precious metals

●      Russia dropped it’s 20% value added tax on the purchase of gold

●      By mid-March, Russian bank Sberbank said demand for gold and palladium had quadrupled

■      The London Bullion Market Association and the CME Group have suspended all Russian refineries from their accredited lists

●      No gold bars newly minted in Russia can enter the world top 2 markets

●      How Will The Russia-Ukraine Conflict Affect Your Finances?

     ○      Higher gas prices

■      Russia is the 2nd largest producer of crude oil in the world

■      The global price of crude oil has grown 2.5% - the highest price in 8 years

■      In the US, gas prices reached the highest recorded - an average of $4.42/gallon on May 12

     ○      Higher grain prices

■      Ukraine is one of the world’s largest producers of wheat and grain

■      Together, Ukraine and Russia produce 14% of the world’s wheat supply

■      Expect higher prices for grain, beer, bread, pasta, cakes, and more

     ○      Stock market dips

■      April 2022 marked the worst April the stock market has seen in decades

●      Nasdaq down 4.2%

     ○      Worst April since 2000

●      S&P down 9.1%

     ○      Worst April since 1970

●      Dow down 2.8%

     ○      Worst April since 1970

●      Jan to Apr 2022

     ○      S&P fell 13.8%

     ○      Cryptocurrency volatility

■      Bitcoin dropped 9% after Putin ordered the invasion of Ukraine

■      Weeks later, Bitcoin prices surged more than 10%, ETH surged 8%

■      Expect crypto to rebound and be used in novel ways

●      Incentive for Russian soldiers to surrender

●      Direct financial support for Ukrainian troops

●      Potential workaround for Russians to avoid sanctions

     ○      Increased gold prices

■      In March, the price of gold hit and 8-month high

■      Gold is often considered lower risk investment in times of market volatility

Gold can be a great hedge against uncertainty.