Russia Feels the Bite of Sanctions

Russia began feeling the bite of a raft of tough global sanctions as its economy lurched into serious trouble. The Russian ruble crashed to a record low against the US dollar, losing 25% on Monday after depreciating by 40% last week.

The Russian central bank more than doubled interest rates to 20%, and the Moscow stock exchange closed its doors until further notice. Economists say that Russia’s economy could shrink by as much as 5% in the coming weeks. 

Meanwhile, Sberbank, the European subsidiary of Russia's biggest bank, was on the brink of collapse as savers rushed to withdraw their deposits. The latest crippling news came as key Russian banks were expelled from SWIFT, the global financial messaging service, effectively paralyzing these banks.

Major Russian companies took a hammering on stock markets. Sberbank shares plunged nearly 70% in London trading, while Gazprom dropped 37% over the same period. 

What does this mean for me? 

Russia is providing an important lesson for students of the global economy. As part of an interconnected and interdependent financial system, any exclusion has dire effects.

With ordinary Russians now joining long lines to draw cash at ATMs, Russian interest rates spiking and Russian bank operations effectively grinding to a halt, the price of isolation from the global financial system is a steep one.

As a diversified trader, expect any financial assets in your basket that are related to Russia to suffer heavy losses in the coming days.