ITV News Correspondent Neil Connery reports on the impact sanctions are already having on normal Russian people
Russia’s Central Bank has sharply raised its key rate from 9.5% to 20% in a desperate attempt to shore up the plummeting rouble and prevent bank runs.
The rouble sharply dived in early Monday trading, as crippling Western sanctions over the Russian invasion in Ukraine began to bite.
The rouble plunged about 30% on Monday against the US dollar as markets opened, after Western nations moved to block Russian banks from the SWIFT global payments system.
The bank’s action follows the Western decision on Sunday to freeze its hard currency reserves in an unprecedented move that could have devastating consequences for the country’s financial stability.
Footage of customers forming queues to withdraw cash from ATMs in Russia began emerging on social media on Monday morning.
A woman exchanging cash in Euros and Dollars in Moscow told ITV News she is worried about the instability of her country's currency and is concerned she could starve.
How do financial sanctions hit Russian banks? ITV News Economics Editor Joel Hills explains
When asked why she was exchanging Rouble, she said: "Because of the unstable situation in the country. We could lose money.
"Speaking plainly, we could end up without anything and won’t even be able to buy bread."
She said she was scared of "depreciation, money, devaluation", adding: "In our country that has already happened. I don’t want to end up hungry."
Another resident in Moscow told ITV News she had tried to withdraw cash from numerous ATMs "many times" on Monday.
She explained she wants to save her money in cash and convert it to Euros or Dollars, adding: "I didn't know what will be [the situation] with banks and electronics."
A Moscow resident who has struggled to withdraw cash from multiple ATMs tells ITV News why she is exchanging her money
It was unclear exactly what share of Russia’s estimated $640 billion (estimated at £450bn before markets opened in London on Monday), hard currency coffers will be paralysed by the move, but European officials said that at least half of it will be affected.
The move is expected to dramatically raise pressure on the rouble by undermining the financial authorities’ ability to conduct hard currency interventions to prevent the rouble from sinking further and triggering high inflation.
The Central Bank also ordered a slew of measures to help the banks cope with the crisis by infusing more cash into the system and easing restrictions for banking operations.
At the same time, it temporarily barred non-residents from selling the government obligations to help ease the pressure on rouble from panicked foreign investors eager to cash out.
The Treasury said on Monday morning the UK would strengthen sanctions by targeting Russia’s central bank.
The government will “take all necessary steps to bring into effect restrictions to prohibit any UK natural or legal persons from undertaking financial transactions involving the (Russian central bank), the Russian National Wealth Fund, and the Ministry of Finance of the Russian Federation”, the Treasury said.
Chancellor Rishi Sunak added: “These measures demonstrate our determination to apply severe economic sanctions in response to Russia’s invasion of Ukraine.
“We are announcing this action in rapid co-ordination with our US and European allies to move in lockstep once more with our international partners, to demonstrate our steadfast resolve in imposing the highest costs on Russia and to cut her off from the international financial system so long as this conflict persists.”
What is a 'bank run'?A bank run occurs when many customers attempt to withdraw their funds at one time because they are concerned that the bank may stop running imminently.
Banks generally do not hold all their assets as cash, and face pressure if large numbers of customers are all attempting to withdraw their money at once.
As a bank run intensifies in, for instance, response to a conflict where consumers fear cash will soon become unattainable, the risk of a bank defaulting due to mass withdrawals deepens.
In order to limit a bank run, the institutions sometimes impose limits on how much cash customers can withdraw, or they may attain more cash from other banks or a country's central bank.
A mass bank run where several banks are affected all at once, such as those that occurred during the cusp of the Great Depression, are collectively known as a bank panic.