central bank in sight
“The economic war against Russia is unpredictable”
03/04/2022, 18:01
The sanctions against Russia, including against the central bank, are having an impact. But they also made the situation extremely dangerous, says British economic historian Adam Tooze. He expects serious inflation in the West – and a run on the dollar.
The war in Ukraine has also sparked a historic financial and economic war with Russia, against the world’s 11th largest economy. The British economic historian Adam Tooze sees the measures as effective, but what makes the situation dangerous: “I think the situation is extremely dangerous and extremely unmanageable at the moment,” said Tooze in the podcast “The hour zero”.
“It’s not the old Cold War, it’s worse because everything is unpredictable.” The West not only imposed sanctions, but also “intervened in the war on the side of Ukraine” with the measures against the Russian central bank. When he first heard about the measure, he was surprised. “And I can’t remember a moment in my life when I was more scared when the word central bank suddenly came up.” It is the “alpha and omega” of sanctions, “tackling” the reserves of a large central bank has a “new dimension”.
The West must be clear that it is not about Iran or Venezuela: “We are imposing sanctions on the second largest nuclear power in the world, which is in an existential war for Putin.” In case of doubt, the Russians could only escalate “asymmetrically into the nuclear area” because their conventional war is faltering.
While Tooze supports the measures, he said: “We should be aware of the risk because we are dealing with a certain personality with Putin.” The West, Tooze said, had previously slipped into this crisis “sleepwalking” – alluding to Christopher Clark’s book “The Sleepwalkers” about the First World War.
The exodus of companies from Russia that are stopping deliveries, putting their businesses on hold or – like Volkswagen and BMW – even closing factories is also a strong signal for Tooze: “The market is adapting on its own. It’s now a huge problem for everyone company to be involved in any kind of Russian business. That’s also the calculus. You don’t even have to announce the details. You just have to say buzzwords like Sberbank, Swift or the central bank and then whisper something about energy. And then the market takes effect.” In any case, the rising commodity prices would also have consequences for the West. “We can expect a tangible inflation, driven by the supply, by the supply chains.”
In the financial system, Western central banks would keep an eye on the consequences, for example on the money market. “But I expect a run toward the dollar to occur in the coming weeks given the uncertainty in the global financial system. And that’s creating tensions all over the world, not just in bilateral exchanges or transactions with Russia. Dollars run out, and then squeaks and it cracks at every corner.”
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