The impact of anti-Russian sanctions on Armenia is discussed by both ordinary residents of the country and experts. Obviously, the country’s economy, which is closely connected with the Russian market, cannot but suffer in such a situation.
The US, European Union, UK and Canada have said they will exclude some Russian banks from SWIFT, the global financial messaging system. Moreover, they announce that they are “paralyzing” the assets of the Russian Central Bank – “so that it does not finance Putin’s war,” as European Commission President Ursula von der Leyen said.
Economist Armen Ktoyan’s opinion on what consequences the situation around Russia may have for the Armenian economy. The expert believes that they can be not only negative.
On February 26, the head of the European Commission, Ursula von der Leyen, proposed the EU to vote for disconnecting a number of Russian banks from the interbank payment system SWIFT (The Society for Worldwide Interbank Financial Tele Communication), as well as freezing the assets of the Central Bank of Russia. The EU countries voted in favor.
The President of the European Commission also said that the proposal was agreed with the US, UK and Canada. Ursula von der Leyen stressed that these measures were aimed at preventing Russia from using the Central Bank’s reserves and supporting its currency, “thus undermining the impact of sanctions”.
Thus, according to Western politicians, Russia will be threatened with the disappearance of imported goods from store shelves, as well rising prices and devaluation of the ruble.
SWIFT is the world’s largest international payment system founded in the 1970s which complies with Belgian and the EU regulations. Banks included in the system make payments using SWIFT messages. Thanks to this system, banks can make large transactions very quickly. Trillions of dollars are transferred through it every year.
After the announcement of Western sanctions, the Central Bank of Russia issued a response statement. It said that the Central Bank has the necessary resources and tools to maintain financial stability and ensure the continuity of operations.
On February 28, it became known that the European Union also banned operations related to the management of reserves and assets of the Central Bank of Russia. However, in the interests of the EU, some transactions with the Central Bank of Russia will be allowed in case of “urgent need”.
If all Russian banks are disconnected from the SWIFT system, Russia will be forced to conduct transactions through other payment systems, which will increase costs and reduce transaction volumes.
Sanctions against Russia have already led to a sharp fall in the Russian rouble, it depreciated to an all-time low, lost more than 30% of its value and reached 109 per dollar. In general, since January 2022, the ruble has depreciated against the dollar by 42%.
Implications for the Armenian economy
Economist Armen Ktoyan explains that SWIFT could be replaced by another system for transmitting financial information, such as Russia’s, but the process would be slower.
According to Armen Ktoyan, the possible consequences for Armenia in connection with the exclusion of Russia from the SWIFT system depend on “what effect it will have on Russia, or to what extent Russia will be able to resist sanctions”.
He emphasizes that for now, only a few Russian banks have been excluded from the system, but if the sanctions affect all of them, much more serious problems will arise.
According to the economist, the Armenian economy will be affected not by the exclusion of Russian banks from SWIFT, but by the consequences of such move, in particular, the sharp devaluation of the ruble.
“The devaluation of the ruble is in no way in our favor. Exports will become more difficult, prices will rise. Problems will arise for both exporters and local producers, who will have to compete with cheaper Russian products in large markets”.
In addition, money transfers from Russia to Armenia will be significantly reduced, and the purchasing power of the amounts sent home by Armenian migrants will decrease.
According to Ktoyan, the situation that has been created will not affect the Armenia-Russia interbank connection:
“There is an internal Russian system for the transmission of financial information, some Armenian banks have joined it, others also have the opportunity to join”.
Moreover, according to the economist, Armenia even has a chance to “win” in this situation:
“Obviously, Russian companies will need non-cash payments to work with foreign partners. They can do this, for example, through Armenian banks, that is, an Armenian bank can become an intermediary between Russia and a Western company with which it has trade relations”.
The expert sees a much more serious problem in the EU ban on the reserves and assets of the Central Bank of Russia. He says it’s a more “active and substantial” limitation:
“The Central Bank has significant resources to prevent a very high devaluation of the ruble. However, now funds in euros or dollars are being frozen, which means that the Central Bank’s ability to influence the ruble exchange rate is significantly limited”.
The expert recalls that Russia is Armenia’s main trading partner, stressing that the deterioration of the situation in Russia cannot but affect the Armenian economy – both imports and exports, as well as investments.
“A significant part of direct investment is Russian capital. These investment programs may be partially reduced or completely stopped”, the economist said.
