As the Russia-Ukraine war enters its second month, Western powers have taken new action aimed at destabilising Russia’s sanctions-hit economy following its invasion of Ukraine last month.
On Thursday, the United States and its allies announced further sanctions targeting Russia’s defence sector, among others, and blocked financial transactions involving the Russian central bank’s international reserves of gold.
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The restrictions are designed to limit Russia’s ability to use gold to circumvent punishing Western sanctions.
The government of President Vladimir Putin has spent years building its reserves and currently has the fifth largest stockpile of gold in the world.
Here is what to know about the Western move.
What was announced?
The US announcement to block gold transactions was done alongside the Group of Seven and European Union allies.
According to the US Treasury Department, “US persons are prohibited from engaging in any transaction – including gold-related transactions – involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation.”
The rule effectively bans individuals – including gold dealers, distributors, wholesalers, buyers and financial institutions – from buying, selling or facilitating gold-related transactions involving Russia and the various parties that have been sanctioned.
The statement came as the US also announced fresh sanctions against 48 state-owned defence companies; 328 members of Russia’s parliament; and Herman Gref, the head of Russia’s largest lender, Sberbank.
Today, in our latest action to impose severe costs on Russia for its unprovoked invasion of Ukraine, the U.S. is targeting the Russian defense sector, a key financial leader, & 328 members of the Russian Duma who have enabled Putin’s war. https://t.co/OMjd5WCPa5
— Treasury Department (@USTreasury) March 24, 2022
What is the effect?
Experts say the transactions ban would in effect apply secondary sanctions on people who trade in gold with Russia.
“It is another way to close sanctions loopholes, and increase economic pressure on Russian entities,” Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, told The Associated Press news agency.
The move is also an attempt to prevent innovative financial transactions through other countries that continue to do business with Russia.
Previously, sanctions against Russian elites, the country’s Central Bank and Putin had not affected Russia’s gold stockpile.
How much gold does Russia have?
Currently, the country has between $100bn to $140bn in gold reserves, which is roughly 20 percent of the holdings in the Russian central bank, according to US officials.
The Bank of Russia had also announced last month, after being removed from the SWIFT bank messaging system, that it would resume the purchase of gold on the domestic precious metals market.
How could Russia use gold to evade sanctions?
The US says Russia can and has used gold to support its currency as a way to circumvent the effect of sanctions.
One way to do that is by swapping the gold for a more liquid foreign exchange that is not subject to current sanctions.
Another way would be to sell the bullion through gold markets and dealers.
The gold could also be used to directly purchase goods and services from willing sellers.