The US imposes sanctions on Russia's central bank in response to invasion of Ukraine.

Key Takeaways:

• The United States has prohibited "any US person from attempting to conduct any transaction" with Russia's Central Bank, National Wealth Fund, or Ministry of Finance.



The US has prohibited "any US person from trying to conduct any transaction" with the Central Bank of Russia, the National Wealth Fund of Russia, or Russia's Ministry of Finance, in what senior administration officials described as the "most significant action taken against an economy of Russia's size."

The measures prevent the Central Bank of Russia from conducting any transactions in dollars, accessing its reserves in dollars, immobilizing its assets in the United States, and preventing financial institutions holding Russian reserves in dollars from moving them. 

The move will "disrupt Russia's attempts to prop up its rapidly depreciating currency by restricting global ruble supplies and access to reserves that Russia may attempt to exchange to support the rouble," according to a statement from the Treasury Department.

Secretary of State Antony J Blinken stated the US had taken additional action against Russia's financial system "in response to Russia's continuing premeditated war against Ukraine," coordinating with allies and partners.

"We took today's actions to limit Russia's ability to use its international reserves in ways that undermine the impact of our sanctions," he said. "We also took today's actions to prevent Russia from accessing its wealth fund for use in its ongoing war against Ukraine."

President Joe Biden and a group of US allies decided to impose restrictions on the central bank and cut off several Russian banks from the SWIFT system. European Commission President Ursula von der Leyen said on Saturday that the European Union would "paralyse the assets of Russia's central bank."

The Russian Direct Investment Fund, its subsidiaries, and its chief executive officer, Kirill Dmitriev, who is said to be a close aide of Russian President Vladimir Putin, have also been sanctioned by the Treasury Department's Office of Foreign Assets Control.

The only exception has been made in the case of energy-related transactions, reflecting the United States' attempt to impose costs on Russia's economy without causing energy prices to skyrocket, which would affect both the American and European markets.

The move, according to US officials, is intended to demonstrate that Russia is "not sanctions-proof," to attack what Moscow thought was its "insurance policy" in terms of substantial reserves by making it impossible for Russia to access these reserves, to detach Russia from the global economy, to further weaken the Russian currency, to unleash a cycle of inflation, to restrict the central bank's routine operations, to exacerbate liquidity problems, to make Russia's aggression a "strategic failure," as well as to disconnect Russia from of the global economy.

As per a senior administration official, the movie had been months in the making and had been discussed with allies and partners since November. Russia had assumed it could turn to its $630 billion "war-chest" when sanctions were imposed. 

Still, the US move, coordinated with the UK and Europe, has made that difficult for balances held in dollars, Euros, and pound sterlings — and limited Russia's ability to seek bailouts.

The statement was made before the markets opened on Monday morning eastern time in the United States, limiting Russia's ability to access the funds immediately. The Central Bank held 32 percent of its reserves in dollars, 16 percent in pounds, and 7% in euros as of June last year.

According to Edward Fishman, a former administration official in charge of sanctions policy who is currently a non-resident senior fellow at the Atlantic Council, the US move was the "most ambitious form of action that this action could take."

"As a result of the action, the Russian government's rainy day funds are now inactive." It's very thorough. This is a first-of-its-kind sanction. As a result, it's difficult to predict the specific consequences with a high degree of certainty. 

However, the ramifications will be far-reaching. And also, it took a lot of guts for the United States and Europe to take this step," he wrote on Twitter.