On February 26, Britain, the United States, the European Union and other countries announced financial sanctions against Russia, mainly freezing the foreign exchange reserves of the Russian Central Bank and kicking seven banks out of the swift system. Russia fell into a “currency crisis”.
The typical performance of the Russian currency crisis.
Financial sanctions cut off the lifeline of Russia’s economy and greatly dampened investors’ confidence in the ruble. Investors sharply sold off assets related to Russia, and Russian stocks and bonds suffered “three killings”. In addition, investors began to price the default of Russian government bonds, and the implied default probability of CDs rose sharply.
There is no doubt that the sanctions have begun to show an intuitive impact – the Russian banking system has encountered unprecedented liquidity pressure.
At present, the Russian currency crisis is gradually spreading outward, but it has different spillover effects on the two major economies of the United States and Europe.
The Russian currency crisis has little impact on the United States.
Theoretically, there are two mechanisms for the transmission of the ruble crisis to the US market: one is the linkage of the balance sheets of commercial and financial institutions; The second is the selling mechanism of offshore and local dollar assets.
The first mechanism means that U.S. financial institutions holding a large number of Russian assets will suffer losses due to the discount of Russian assets, and the pressure on the balance sheet will be further transmitted to related financial institutions, which will eventually affect the stability of the U.S. financial market.
The second mechanism refers to that if the tightening of US dollar financing in the offshore market leads to the selling of US dollar assets by non-U.S. financial institutions, this behavior resonates with local investors (also selling US dollar assets) and eventually impacts the US financial market.
In reality, the United States is less affected by the above two mechanisms.
U.S. financial institutions have little exposure to Russian assets, and the balance sheet linkage mechanism of commercial financial institutions plays a limited role.
One constraint of this round of sanctions is to freeze the assets of the Russian central bank, which will reduce the supply of dollars in the offshore market. However, according to the data released by the annual report of the Russian central bank, the scale of less increase in US dollar supply may be 50 billion, which is far less than the scale required to trigger fluctuations in the offshore market in history. It is speculated that the impact of the financial sanctions on the offshore US dollar market is limited.
Eurozone liquidity may be tested.
In theory, once the branches of Russian banks in Europe go bankrupt, it will have an impact on the liquidity of other relevant banks. In reality, the branches of Russian banks in the euro zone have encountered liquidity crisis, and even some banks are close to bankruptcy.
Eurozone banks have a certain amount of risk exposure to Russia, especially Italian and French banks. This means that the collapse of the Russian banking system will drag down eurozone banks with high risk exposure. There is already a close asset liability relationship between banks in the eurozone, which means that the risk of Russian banks will be transferred to Europe. When Russian assets face discount due to the liquidity crisis, if European commercial institutions use Russian related assets as collateral for financing transactions, they will not be able to maintain, which will have an impact on market liquidity.
The pace of monetary tightening of the European Central Bank further lags behind that of the Federal Reserve.
At present, the European Central Bank has observed the impact of financial sanctions and other factors on the eurozone, and will discuss the impact of the situation at the monetary policy meeting in March. Market expectations for European currency interest rate hikes fell in December. On the premise of no further spillover of the impact on the offshore US dollar market, the Fed’s monetary policy will not be affected by financial sanctions. The tightening pace is further ahead of the European Central Bank, and the US dollar index performs strongly.
Risk warning: the development of geographical conflict exceeds expectations; The understanding of monetary policy of overseas central banks is not in place.
