Russia running low on foreign exchange reserve

 Center for Security Policy:

Fast decline in foreign exchange reserves forces Putin to change his strategy, increasing chances for Ukraine’s victory, Russia’s liberation, and Western triumph

Since Putin launched a new stage of the Russian-Ukrainian war on February 24, 2022, Russia’s foreign exchange reserves have declined by $102.5 billion.

The monthly rate of decline over last seven and half months of war amounted to $13.7 billion on average. It is close to the author’s estimate of Russia’s current average monthly military spending – (about $500 million a day, or $15 billion a month).

For the first time in this war, Russian reserves declined at double-digit rates for five weeks in a row. As of September 30, 2022, officially reported Russia’s forex reserves have decreased by almost 16%.

However, even this speedy rate of reserve reduction understates the dramatic nature of Russia’s international reserves position. The sanctions imposed by the U.S., EU, and other countries have frozen the Russian central bank currency reserves within their jurisdictions, leaving the remainder less liquid.

As of February 18, 2022, the last Central Bank of Russia (CBR) reporting date prior to the Kremlin’s full-scale invasion into Ukraine, official Russia’s international reserves amounted to $643.2 billion. According to Russia’s Minister of Finance Anton Siluanov and the head of the Russia’s Central Bank Elvira Nabiullina, the Western sanctions have blocked Russian reserves amounting to $300 billion.

Therefore, at the end of February, the fully liquid part of Russia’s foreign exchange reserves likely fell close to $343 billion. Considering the decline of official reserves by $102.5 billion over last seven and half months, the size of the still liquid part of the Russian international reserves as of September 30 is probably close to $240 billion.

...

Since $300 billion of the reserves have been frozen, the remaining still liquid part of reserves last February was enough to wage war for only 25 months, or slightly more than two years.

Additional decline in reserves over the last seven and half months brought the still liquid part of Russia’s reserves at the end of September 2022 to around $240 billion, which is enough to fuel war for roughly 18 months.

...

It looks like Putin will be unable to sustain his war with Ukraine while Russia is still dealing with sanctions on his economy.  Russia is paying a high price for a war that never made much sense, to begin with.  Putin would be smarter to call it quits and get out of Ukraine.  The war has been a costly failure of troops and money.

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