Divide Forex Reserve Into Two Components

The United States (US), European Union (EU) and several countries have imposed a raft of punitive measures on Russia for invading Ukraine. One of the more serious forms of sanctions has been the freezing of the Russian central bank’s assets held in foreign-denominated currencies. When a country earns more foreign exchange (forex) than it spends, it moves the surplus into its reserve account for future contingencies. These reserves are not held in physical currency, but in different forms of financial assets such as gold and debt instruments (bonds and bills) of foreign governments. Countries prefer to invest in currencies that are liquid (easily convertible), widely accepted and trustworthy. The US dollar fits all these criteria.

Our Geo-economic Interests Lie with the West as Well as the Rest

Over the past few weeks, I discovered a marked difference in attitudes towards the Ukraine war between those of my friends who had spent time in the New Delhi establishment and those who hadn’t. The Delhiwaalas—diplomats, economists, journalists and veterans—were more likely to argue that reports of Russian losses were part of information operations, the West was to blame for provoking Vladimir Putin, we depend on Moscow for critical defence equipment, and that India ought not take any position that would hurt Russia. This was the case across the political and ideological divide: as long as they were Delhiwaalas, they more or less held this view. I was thus not surprised when opposition parties mirrored the government’s position on this issue, revealing a rare non-partisan consensus in these polarized times.

Atmashakti Over Atmanirbharta: Learn Right Lessons from Russia Sanctions

Confirmation bias is the tendency to search for information that confirms one’s preconceptions. This bias is visible in the Indian debates on technology following the West’s stringent export controls restricting the Russian state’s access to cutting-edge technology.

Some tech companies have gone far beyond the remit of these controls, suspending their operations or restricting access to Russian citizens. For those who seek tech self-sufficiency, this war appears to bolster their case for everything from data localisation to domestic social media platforms and home-made drones.

How Western MNCs Weakened Globalisation by Taking Sides

The closing of McDonald’s in Moscow is bad news for the global economy. Whatever the military outcomes of Vladimir Putin’s war on Ukraine, its geo-economic consequences are negative for just about every country on the planet. Even if major economies manage to absorb some of the immediate shocks created by disruptions and sanctions, the global response to the war will shift public policies around the world in a regressive direction. I hope McDonald’s exit from Russia does not mark the end of a period of global growth and prosperity—India’s included—that began with the arrival of the golden arches at Moscow’s Pushkin Square in January 1990. But I fear it does.

India can work around Russia’s SWIFT expulsion. But there may be geopolitical costs

One of the most severe Western sanctions on Russia is freezing the Russian central bank’s assets held abroad. Russia has $630 billion in foreign exchange reserves. However, more than $300 billion worth of assets are held abroad in the Federal Reserve (US central bank) and the European Central Bank (ECB). Cutting off access to these funds to Russia can be a mighty blow.

The other big action underway is excluding Russian banks from the SWIFT network, which facilitates international payments. SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a global messaging system that allows banks to communicate with each other in a secure manner, enabling safe transfer of funds. Based in Belgium and jointly owned by 2,000 banks and financial institutions, it is the underlying technology that enables global payments and has 11,000 international banks as members.

Cutting Russia Off SWIFT Could Accelerate Beijing-Moscow Alternative Payments System

On February 24, the United Kingdom (UK) announced its “largest-ever” economic sanctions on Russia, and so did the United States (US). As the sanctions get stricter, shared economic interests and geopolitical considerations are likely to deepen economic relations between Beijing and Moscow, including the prospect of building an alternative financial system.

The signs of deepening Russia-China economic relations are evident. In an interview with a Russian newspaper amidst Russia’s recognition of rebel-held regions in Eastern Ukraine, China’s ambassador to Russia, Zhang Hanhui, spoke about possibilities of furthering cooperation between Moscow and Beijing, especially in energy, space, financial cooperation, and high-tech weapons systems. These are also the sectors targeted in the recent round of sanctions by the UK and the US. This is explicit signalling by Beijing of its support for Moscow.