(Bloomberg) — Sanctions in the wake of the country’s invasion of Ukraine are targeting Russia’s biggest banks, biggest companies and the richest people. They are knocking even further by squeezing everyday Russians living abroad.
These migrants do not have private jets or money managers. But they are accustomed to easy online banking, cheap currency conversion and a constant flow of goods and services between their current outpost and home. With the new sanctions coupled with a sudden policy change by Russia and a breakneck fall in the value of the ruble – those links have been broken within days.
“I have some stupid expectation that the currency rate will change, and the situation will be better,” said Marina Gretskaya, 32, who moved to London from Russia last year to take a job in communications.
Gretskaya kept a savings account open at Tinkoff, an online Russian “Neobank” popular with young consumers comfortable with online banking. He had a net worth of $7,400 last week. On Monday, the ruble fell by more than 30% against the dollar. It evaporated over $2,000 from his savings.
“This is a month’s salary,” Gretskaya says.
Russia has one of the largest diaspora in the world. According to a 2020 report by the United Nations, around 11 million people born in the country live outside its borders. This puts it ahead of Syria and China and on a par with Mexico in terms of migrant population.
Some Russian expatriates, notoriously, are wealthy. Some fall within the expanding scope of the more than 100 individuals, entities and their subsidiaries accepted by the United States and its allies. Yet many have more modest balance sheets. For example, the US was home to 4,805 Russian students in the academic year that ended in 2021, according to the Institute of International Education. According to the UK Higher Education Statistics Agency, the figure for Britain was 3,380.
The sanctions of those countries – in addition to the European Union and other major economies – have banned many financial activities, locked away billions of assets of Russia’s central bank and even restricted where Russians Citizens can fly.
In response, the Bank of Russia more than doubled its prime interest rate to 20% and imposed controls on the flow of capital. Moscow’s stock market closed for the third day on Wednesday. At home, Russians are trying to withdraw as many US dollars as possible, forming large lines at ATMs.
“It’s going to be quite devastating,” said Mark Gelotti, an honorary professor in the UCL School of Slavonic and East European Studies. “I don’t know how these people will cope financially.”
Gelotti does not see Putin’s course changing from the financial stress of everyday Russians outside his borders.
“He doesn’t care if the oligarchs are squeezed,” Gelotti said. So people with very low incomes abroad? “These are by no means people who could have any influence on Putin, and are unlikely to care about Putin.”
Russia’s invasion has wreaked havoc on Ukraine. Russian forces besieging the Ukrainian city of Kharkiv, a city of 1.8 million, launched rocket attacks on a residential district on Monday, killing or injuring dozens. About three-quarters of a million people have left the country and emigrated to the European Union, and the United Nations projects as many as 4 million will eventually leave as refugees.
Far from the front lines, international action in response to the war has left Russian expatriates uncertain whether financial services still work and, if they do, how much time they will have to keep using them.
32-year-old Irina Belova moved from Moscow to Washington, DC in January 2020 and works in the capital markets department for a mortgage broker. Her family is still in Russia and was badly affected by the ruble’s fall. The instability and the continued imposition of further SWIFT sanctions have left her in a state of uncertainty as to whether she will be able to help her family.
“I don’t know what to expect,” Belova said. “The situation is getting worse day by day and we do not know what will be the next step in restrictions. But I’m really afraid that if I need to send money to my family in Russia, I don’t know if I’ll be able to do that.”
Maria MacDonald, who co-founded a marketing agency in London and moved there from Russia six years ago, says she’s not entirely sure why her British Barclays card isn’t working at Yandex, which operates in Russia. Works like Amazon.com. She usually sends food and gifts to let her family know that she is thinking of them.
She doesn’t know whether her normal transactions have failed because US and European powers have committed to removing some Russian banks from the SWIFT messaging system, recently tightened capital controls, or something else entirely.
“People are trying to figure out what we’re allowed to do,” Macdonald says.
At work, McDonald said his UK-registered firm prepaid its Russian contract workers a month in advance and asked them to open accounts at banks that are not currently approved. She says she has seen a lot of her friends try to convert their rubles into dollars or even cryptocurrencies.
Evelina Lavrova is one of the Russian expatriates who are considering using cryptocurrencies as a form of payment if not using banks. The 37-year-old moved to the US from Russia in 2019 and now runs a marketing agency for Web3 startups in New York City.
“You become the host of the political situation even if you no longer live in your country,” Lavrova said.
Lavrova conducts all of its banking through American institutions. Their main concern is whether banks will ban Russian citizens from holding accounts registered with their foreign passports.
“If that happens, we can use crypto platforms as an alternative,” Lavrova said. “But you can’t pay everything by crypto and need to withdraw money on a debit card or exchange it on cash anyway.”
Cryptocurrency exchanges are still trying to figure out their next move. Bitcoin, which lagged in 2022, has risen more than 15% since late February on an emerging narrative that financial instability in Russia could make the cryptocurrency unethical, increasingly lucrative from any government.
To contact the authors of this story:
Alice Kantor in London [email protected]
Miserlena Egkolfopolu in New York [email protected]
Charlie Wells in London [email protected]