DNB, together with the ECB and other central banks, is publishing new sustainability figures for the financial sector this week. Why, in fact? And what exactly are we measuring? See the Q&As below.Read more
What do the sanctions against the Central Bank of Russia mean?
The European Union imposed sanctions against the Central Bank of Russia on 28 February. As a result, the Russian central bank can no longer access its assets at private institutions and central banks in the European Union. Other countries have imposed similar sanctions against Russia. How do these sanctions work and what are the consequences?
First, some background information. Central banks have accounts with central banks in other countries and sometimes also with private financial institutions. These accounts hold money and securities in the currency of the country where that central bank or private institution is located. For example, the US Federal Reserve's euros are held by one or more central banks in the euro area. Conversely, European central banks hold US dollars in the United States. It is very common for central banks around the world to hold accounts in each other's currencies.
Why do central banks also hold other currencies?
An important purpose of holding foreign currency is to keep the exchange rate of one's own currency stable. Central banks ensure this, for example, by selling their own currency against other currencies or by buying other currencies. Another purpose of holding foreign currency is to enable smooth payments between different countries in different currencies. Finally, a central bank can lend the relevant currency to banks in its own country in case of need.
What about the accounts of the Central Bank of Russia?
The Central Bank of Russia also holds reserves in euros and US dollars. These are held directly or indirectly by central banks and/or private institutions in the United States and the euro area.
What is the purpose of the sanctions against the Central Bank of Russia?
The purpose of the sanctions is to cut off the Central Bank of Russia's access to its reserves in the United States and the euro area. This has major implications for the Central Bank of Russia, since making international payments will become more difficult if it can no longer access its US dollars in the United States, or its euros in Europe. Moreover, it will no longer be able to provide Russian banks with these currencies in times of need. This will make it increasingly difficult for the Central Bank of Russia to keep the Russian currency – the rouble – stable. The value of a currency that is not stable can quickly deteriorate. This could mean that Russians will see their purchasing power and wealth decrease, because imported goods and thus, for example, their groceries will become more expensive.
Would you like to know more about the sanctions against Russia and how they work? Read more