In the last 11 days, there have been many headlines in the international media about the secession of 12 Russian banks from Swift, the ban on millionaires, and the suspension of services and sales of various global companies in Russia.
But the most effective of these is to limit the use of foreign exchange reserves of 75 trillion. A report in The Guardian described the incident as an economic blockade on Russia.
Reserve works in two ways. First, it acts as a kind of barrier. Because, those who are thinking of an economic attack on a country, if they know that the central bank has the capacity to deal with it, they will think twice. The larger the reserve, the less likely it is for the central bank to use it.
Second, the central bank can actively intervene in the money market if the reserves remain high. In the case of Russia’s central bank, the Russian currency would appreciate if it could convert 650 billion into rubles and sell dollars, euros or pounds for rubles.
Meanwhile, not only Russia, but everyone will be hit. World Bank chief David Malpas warned on Friday that the Russia-Ukraine war could have “devastating” effects on the world economy. Gita Gopinath, the first deputy managing director of the International Monetary Fund (IMF), said on Saturday that the war would increase the cost of living in various countries due to rising fuel and food prices. They fear that the economically backward countries will be in trouble.
The world community has been fighting Corona for two years. And now the war has started, which will spread to other countries in the coming days, there are also concerns.
According to Gita, developing countries not only have higher demand for fuel and food, but also higher costs. For example, fuel and food account for 30 percent of the world’s average demand. There, in the case of the African continent, it is 50 percent. Much of it has to be imported. In developed countries, 10 percent of the total expenditure is behind these two, in developing countries it is 25 percent and in low-income countries it is 50 percent.