Sanctions and dollar dependency in Russia: resilience, vulnerability, and financial integration

Abstract

What are the long-term effects of the financial sanctions against Russia? We provide a time-sensitive analysis of the sanctions impact on certain Russian financial markets and highlight how Russia has responded strategically. Our analysis also captures the effect of the threat of sanctions and informs the debate on sanctions effectiveness. Thus, our study indicates how financial sanctions can be incorporated into theories of deterrence and conflict resolution. We also provide some policy implications that can be generalized and reinforce previous research. Russia’s banking system is highly dependent on dollar transactions, and in response to sanctions, Russia has systematically undertaken measures to promote its economic sovereignty under conditions of continued financial integration. We argue that sanctions put some pressure on the Russian budget, and that this effect has been exacerbated by the Covid-19 crisis, but also that Russia has used debt placements strategically in order to deter sanctions escalation.