Russians’ foreign currency accounts of unfriendly countries may be frozen due to sanctions, warned a leading analyst at the Global Research Department “Open Investment” Oleg Syrovatkin. True, according to the analyst, while this threat is more relevant for legal entities and individual entrepreneurs who may be subject to restrictions.
“Decree, which Vladimir Putin signed on August 8, allows such credit institutions to suspend the fulfillment of their obligations to customers in foreign currency, if the corresponding funds were credited to the account after August 8, 2022,” he explained.
In addition, even without freezing, according to Syrovatkin, dollars, euros and other currencies of unfriendly countries are becoming more and more toxic for Russians. Interest rates on bank deposits in them are low or absent, and you often have to pay a commission for storage in settlement and brokerage accounts. In addition, making transfers in such currencies is likely to be problematic and may not be feasible in principle.
As a result, the question arises of what can be done with dollars and euros if there is no desire to keep them at home, in a cell or on a bank deposit.
“Earlier, Russians could invest the currency of unfriendly countries in the securities of foreign issuers, but today they, in fact, are deprived of such an opportunity. Firstly, it is often not easy to do it technically, and secondly, such investments are associated with infrastructural risks.”, the analyst noted, adding that all the actions and rhetoric of the Russian authorities clearly speak of a strict course towards de-dollarization and devaluation of the Russian economy and financial system. Therefore, most likely, in the future, owning the currencies of unfriendly countries will become even less profitable (and in many cases even more expensive), as well as more risky.
Andrey Kochetkov, Leading Analyst of Otkritie Investments for Global Research explained to Free Press that not only the accounts of companies and individual entrepreneurs, but also individuals, if they were opened recently, were at risk.
“Our authorities were going to make sure that foreign currency accounts of legal entities could be easily converted into rubles, then receive these funds and continue to work with them. We are talking about the funds that come from abroad to legal accounts. But if there is a decision that these companies or entrepreneurs are subject to sanctions, the accounts will be frozen.
If the settlements were made through a foreign bank, it can withdraw these funds, in which case they will not be available to the recipient bank, they simply will not be in the system. All payments in euros and dollars go through the “central cash desk”. In the case of the euro, this is the European Central Bank in Europe; in the case of the dollar, the Fed in New York.
Any foreign currency funds that are on accounts in banks that have fallen under the sanctions are also, as it were, frozen, but they are in the system. Banks cannot dispose of them, but in fact there is currency. If we are talking about entrepreneurs who fall under sanctions and their accounts are frozen, these funds become inaccessible to the bank not only in reality, but even virtually. In accordance with this, the bank may terminate its obligations under foreign currency accounts, and these funds will not be available even in rubles, since the bank, in fact, has no access to them and cannot take them into account in its capital movements.
“SP”: – Is there a threat of freezing foreign currency accounts of individuals?
– If they were opened before a certain date and remain in one form or another in the ownership of banks, most likely not. If we are talking about the current moment and recent operations, then this is quite possible.
You need to understand how the banking system works. This is not just a package full of banknotes, but funds that go to the bank, in the case of currency, for example, to an electronic account. The bank places this money in the Central Bank or issues it in the form of a loan, it can issue ruble loans against foreign currency savings, and so on. That is, the money is at work. It’s not just storing electronic numbers or paper money in basements. In fact, the bank has these funds in one form or another. Therefore, the state says that depositors can receive their funds in foreign currency, but not more than a certain amount, based on the availability of this currency in the banking system. The rest can be received in rubles, since these accounts are in operation, the bank cannot only carry out foreign exchange transactions.
“SP”: – In this case, does it make sense to keep foreign currency accounts at all, what alternatives can there be?
– The currency of unfriendly countries, in fact, has ceased to be money for us. If a bank can pay out a certain amount of cash in rubles, this is still money. But, by and large, this is money that does not work. Banks do not charge interest on these accounts. We do not allow individuals to make negative rates, but for legal entities the State Duma has already allowed banks to set them.
Accordingly, for individuals, currency is just numbers on the account. It is impossible to use this currency to make payments in online stores or electronic services, and it is also impossible to pay for a hotel somewhere in Turkey with this money. To do this, you need to take these funds in rubles or in cash, go to a bank that has the ability to make payments abroad, and act through this bank. Banks that do not have such access cannot use this currency. Although it has been put into operation, it does not generate income, but is a burden.
Accordingly, it is perhaps just pleasant for a private person to keep money in foreign currency. One can also hope that in a couple of years the situation will normalize and then this currency will become available again. But given the extent to which developed countries have politicized their currencies, which simply “cut their throats with a knife”, it is difficult to imagine that in a few years dollars and euros will have the same status as they do today.
Some banks today offer to convert the currencies of unfriendly countries into the currencies of friendly countries. But here, too, you need to understand that they, as a rule, are either worse in quality than the dollar, the euro, and sometimes the ruble itself. The same currencies of the CIS countries, with all our love and respect for our partners, are losing rubles, since their economies are much weaker than the Russian one.
“SP”: – And the yuan?
– The yuan is a kind of proxy dollar, which is partly pegged to the US currency, but has a certain tendency of economic encumbrance. Now it is weakening and trading at the lowest levels in a long time. That is, the yuan can also weaken and change. Although the yuan has such a positive moment as a positive rate. Banks still pay interest and yuan deposits bring some income. But it is also very difficult for Russian citizens to use the Chinese currency. Even UnionPay, the Chinese system presented here, is very reluctant to work with Russian clients, AliExspress does not always accept payments in yuan, and when paying with rubles, the exchange rate is 10-15% higher than on the exchange.
In general, everything is very complicated and problematic with the currency now. If you really want to, you can hold certain amounts in foreign currency, but this is not a working option. There are simpler options – bonds indexed for inflation, buying physical gold or depersonalized metal accounts. The currency is in most cases impossible to use, so it has effectively become a virtual asset.