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"Watching the ruble’s drop to record lows amid fears of international sanctions against Moscow, Russians rushed to ditch their currency and buy foreign money in March in a similar manner as during the global financial crisis.
Following an escalation of tensions after Russia’s annexation of Crimea and Moscow’s warning that it might intervene militarily in Ukraine to protect pro-Russians there–moves that caused the ruble to tumble to an all-time low against the dollar and the euro–Russian household demand for foreign currencies peaked in March at a more than five-year high of $14.3 billion in U.S. dollar equivalent terms.
In February, households’ demand for hard currencies reached $9.6 billion. The Bank Of Russia in its monthly overview of the domestic foreign cash market said demand for dollars rose 48% in March compared with the prior month, while interest in buying euros rose 50%.
The central bank said the rise in overall demand for foreign currencies in March was mostly caused by an intensified cash withdrawal from accounts, which jumped 82% compared with February.
This might have been a consequence of international sanctions introduced because of the annexation of Crimea, which targeted Bank Rossiya—a organization that the U.S. Treasury Department described as the personal lender of senior Russian officials. As a result, both Visa IncV -1.21%. and MasterCard Inc.MA -1.46% have stopped servicing the bank, raising concerns that other banks could be similarly affected.
Also, an intensified purge of lenders across the country–in the past year alone the Bank of Russia has shut more than 100 banks–has added to households’ mistrust of the banking system.
The flight to foreign cash reflects a deterioration in the economy that started at the beginning of this year, Alfa Bank said in a note. Russia bled more than $60 billion in net capital outflows in the first quarter alone, more than during the whole of 2013. The economy ministry said gross domestic product may contract by more than 1% this year should capital flight remain at levels seen in the first three months of this year."
"Watching the ruble’s drop to record lows amid fears of international sanctions against Moscow, Russians rushed to ditch their currency and buy foreign money in March in a similar manner as during the global financial crisis.
Following an escalation of tensions after Russia’s annexation of Crimea and Moscow’s warning that it might intervene militarily in Ukraine to protect pro-Russians there–moves that caused the ruble to tumble to an all-time low against the dollar and the euro–Russian household demand for foreign currencies peaked in March at a more than five-year high of $14.3 billion in U.S. dollar equivalent terms.
In February, households’ demand for hard currencies reached $9.6 billion. The Bank Of Russia in its monthly overview of the domestic foreign cash market said demand for dollars rose 48% in March compared with the prior month, while interest in buying euros rose 50%.
The central bank said the rise in overall demand for foreign currencies in March was mostly caused by an intensified cash withdrawal from accounts, which jumped 82% compared with February.
This might have been a consequence of international sanctions introduced because of the annexation of Crimea, which targeted Bank Rossiya—a organization that the U.S. Treasury Department described as the personal lender of senior Russian officials. As a result, both Visa IncV -1.21%. and MasterCard Inc.MA -1.46% have stopped servicing the bank, raising concerns that other banks could be similarly affected.
Also, an intensified purge of lenders across the country–in the past year alone the Bank of Russia has shut more than 100 banks–has added to households’ mistrust of the banking system.
The flight to foreign cash reflects a deterioration in the economy that started at the beginning of this year, Alfa Bank said in a note. Russia bled more than $60 billion in net capital outflows in the first quarter alone, more than during the whole of 2013. The economy ministry said gross domestic product may contract by more than 1% this year should capital flight remain at levels seen in the first three months of this year."