Ruble plummets as banks around the world, including in Canada, freeze Russia out

The Russianruble plunged to its lowest level on record on Monday after Western nations moved in unison to try to freeze the country out of the global financial systemand sell off Russian investments in condemnation of Putin's decision to invade Ukraine.

The invasion has caused volatility in the global economy, especially the energy sector, but developments on Monday by financial powers around the world are an attempt to direct that uncertainty squarely on the Russian economy itself.

The ruble had plunged more than 30 per centafter the move to block Russian banks from the SWIFT globalpaymentsystem, which providesa secure messaging system to facilitate cross-border money transfers.

Among other things, the sanctions by Western nations are meant to crimp the Russian central bank's access to over $600 billion US in reserves and hinder its ability to support the ruble.

Banks attempt to cut Russia off

Central banks around the world are effectively cutting Russia off from its coffers outside the country, and retail banks in North America and Europe are following suit by halting business with them.

The Canadian government announcedon Monday that Canadian financial institutions are now "prohibited from engaging in any transaction with the Russian central bank."

If the Russian central bank's assets are frozen and banks refuse to make deals with them, the central bank's ability to prop up the value of the ruble by buying it up is significantly limited.

The Russian central bank raised its key rate to 20 per centfrom 9.5 per centin a desperate attempt to shore up the plummeting ruble and prevent a run on banks. But the move didn't work, as the ruble fell as low as 119 to the U.S. dollar atone point on Monday morning.

That's down by about a third from where it was a week ago, and more than three times lower than what it was worth in 2014, before Russia's incursion into Crimea.

Sovereign wealth funds, including those ofNorway and Australia, have announced plans to sell their Russian investments. The Canada Pension Plan has not had any direct investment in Russia since 2014, a spokesperson told CBC News.

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BP, Shell sell off interests

British oil giant BP announced over the weekend that it would sell its 19 per centstake in Russian state-owned oil company Rosneft. The move is expected to cost the British oil giant as much as $25 billion, but CEO Bernard Looney said the shocking invasion "has caused us to fundamentally rethink BP's position with Rosneft. I am convinced that the decisions we have taken as a board are not only the right thing to do, but are also in the long-term interests of BP."

Later in the day, oil giant Shell announced plans to do the same, selling off interests in LNG facilities and extricating itself from any involvement in the proposed Nord Stream 2 pipeline to bring Russian gas to Germany.

Even Switzerland, famous for its neutrality and banking secrecy laws, is participating in freezing Russia out of the global banking system.

"With the end goal defined as destroying the brutal killer Vladimir Putin through internal collapse and dissension by creating a critical mass of internal opposition, the targeted means to achieve this end kicked into higher gear over the weekend," Scotiabank economist Derek Holt said of the moves.

There is now a roughly 50 per cent chance that Russia will soon default on its debts as a resultof the measures taken, he said.

"They can still do more, but the biggest remaining options are likely ones like thwarting the supply of Russian energy that could take years," Holt said.

Worries over inflation

A weaker ruble is expected to cause inflation to surge, potentially angering Russians whose budgets will be stretched by soaring prices. It will also add to strains across Russia's financial systems.

"At the moment, the ruble is in a state close to free fall," Alex Kuptsikevich of FxPro said in a report. "At some point in the coming days, we will see the limit of the fall of the ruble, from where it will begin its slow and difficult recovery. But it is hardly possible to pinpoint."

Russian stocks were hit hard, with the main index on the Moscow Stock Exchange halting trading once automatic loss levels were hit. The central bank announced the stock market won't even open on Tuesday.

Shares in Russian bank Sberbankthat list in London lost 70 per cent of their value, while shares in Gazprom lost more than a third.

West accepting 'a bit of economic pain'

"It's all about the Russia-Ukraine situation, and evolutions in that situation will drive market sentiment and direction," Jeffrey Halley of Oanda said in a commentary.

"President Putin will now have to accept that the Westernpowers are prepared to accept quite a bit of economic pain now to punish Russia."

But the Ukraine conflict has heaped uncertainty atop other worries over interest rates and inflation.

The U.S. Federal Reserve has suggested it will raise short-term interest rates next month by double its usual increase, the first rate increase since 2018. Canada is also expected to raise its benchmark interest rate on Wednesday, as planned.

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