SACHA PFEIFFER, HOST:
As Russian forces continue their military assault on Ukraine, the U.S. and its allies are fighting back with economic weapons. Today the Treasury Department announced a new set of sanctions aimed at Russia's central bank. Other major countries have taken similar steps, and that touched off a financial panic in Russia, even as fierce fighting continues next door. NPR's Scott Horsley joins us now. Hi, Scott.
SCOTT HORSLEY, BYLINE: Hi.
PFEIFFER: We have seen the U.S. go after other Russian banks and oligarchs. What's different about this latest move?
HORSLEY: This is designed to really put the squeeze on the broader Russian economy by targeting the central bank. Before the invasion, the Russian central bank had more than $600 billion in foreign reserves, which ordinarily it could use to prop up its own currency. The U.S. and its allies have now frozen about $400 billion of that. Josh Lipsky, who's a former IMF adviser, now with the Atlantic Council, says it's really unusual to see sanctions leveled at a major central bank like that, especially in such a swift and coordinated way.
JOSH LIPSKY: What the U.S. and its allies are doing is bringing down the heaviest financial hammer they can find on the Russian central bank and, therefore, the Russian economy.
HORSLEY: And it's working. The ruble fell to a record low today, even though the central bank tried to support the currency by more than doubling its benchmark interest rate to 20%.
PFEIFFER: What is that likely to mean for Russia's economy and for the Russian people?
HORSLEY: Well, nothing good. It's triggered a classic run on the bank. There were reports out of Russia today of ordinary citizens lining up at ATMs in hopes of getting rubles out so they could exchange them or just buy something before their money lost more value. Falling value of the ruble makes everything Russia imports more expensive. And Adam Posen, who heads the Peterson Institute for International Economics, says this is going to cause real hardship for Russian citizens.
ADAM POSEN: It leads directly to people having much higher expenses cost of living, limited access to important things like medicine and technology that come from abroad. I mean, this is very scary for the average Russian and, therefore, for Putin.
HORSLEY: Now, whether it's enough to force Putin to change course in Ukraine is another matter, Posen says. There are plenty of examples in Iran and North Korea, for example, where economic sanctions caused lots of pain for ordinary citizens, but leaders just went ahead and did what they wanted. Whether or not Putin changes his mind, though, these moves have certainly raised the price tag that Russia's paying for this invasion.
PFEIFFER: Scott, we've heard a lot about how Russia was prepared to defend itself against economic sanctions. What happened to those defenses?
HORSLEY: You know, Russia may have overestimated its preparedness, just as it may have underestimated the resistance it would face in Ukraine. Russia still does have reserves it could tap in China. Beijing has not joined in this international squeeze play. There are other steps Moscow could take, but Lipsky says the idea that Russia had really fortified its economy to withstand sanctions has turned out to be kind of a myth.
LIPSKY: Fortress Russia does not exist. They are scrambling to figure out a response to these heavy sanctions. So it's just a major fell swoop that damages their entire financial position.
HORSLEY: Now, the sanctions do include some loopholes. For example, they don't block Russia from continuing to sell oil and natural gas on the world market. Allies are worried about driving energy prices up even higher than they already are.
PFEIFFER: Is there a chance these sanctions could backfire and end up hurting the U.S. and its allies?
HORSLEY: This is not without risk. Gasoline prices have already jumped in the last week by about 10 cents a gallon in the U.S. They could go higher with these sanctions. Russia could also try to retaliate with cyberattacks here or in Europe. Still, Lipsky notes, you know, Europeans have a lot more to lose from this than the U.S. does, and it was European leaders who pushed this get-tough approach.
LIPSKY: We have to look at people in Germany and France and the United Kingdom and others who we know will be paying higher energy prices immediately, and they were willing to take that on to defend or at least hopefully defend or protect the right and democracy of the people of Ukraine.
HORSLEY: Lipsky and others I spoke to are really impressed by how unified the allies have been, and they say that might not have happened were it not for the remarkable resistance we're all witnessing in Ukraine.
PFEIFFER: NPR's Scott Horsley, thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
