Russia is facing financial meltdown as its economy is pummelled by Western sanctions.

Authorities prevented the Russian stock market from opening today, fearing a sea of red after the European Central Bank and the US Federal Reserve moved in tandem to freeze Russia’s central bank assets on Sunday. Many Russian banks have also been barred from using the SWIFT financial payments messaging system, severing their connection to the global economy.

The ruble nosedived 30% against the dollar in early trading, an all-time low, before rallying to -20%. In response, Russia’s central bank doubled its interest rate to 20% to try to halt the freefall.  

President Putin held an emergency meeting with his senior economic advisers today at which he ranted at the “empire of lies” that calls itself the West. He announced a ban on Russians depositing cash in foreign accounts to limit damage to the ruble.

It’s hard to overstate just how devastating these sanctions are for Russia. Moscow is now effectively banned from accessing the roughly $300bn of foreign reserves located abroad, out of its $640bn rainy day fund amassed by Putin over the last eight years. Russia’s central bank can’t sell these reserves to prop up the value of the ruble or repatriate them to swell coffers at home. It means they can’t be used to fund the war effort or to pay out scared bank customers if they all decide to withdraw their money at the same time.

This is how bank runs start, and there have been queues at cash machines across the country today as Russians rushed to take out their savings.

As George Bush’s ex-speechwriter, David Frum, points out: “Most of Russia’s reserves are literally IOUs to the Russian central bank from Western governments.” When the Fed and ECB receive a request from Russia to get its money back, they will simply say… no.

This decision by leading central banks and finance ministers including Chancellor Rishi Sunak is the financial equivalent of pressing the nuclear button. Does Putin understand how the West has trapped him when he assumed Russia had reserves stockpiled and instant access? It looks as though he’s getting a quick, live lesson in how the global financial system works. Maggie Pagano looks in detail at the economic war being waged against Moscow and why Putin’s Fortress Russia may not be as strong as it seems.

All this is grim news for Russian citizens. Once the effects filter into the system, they can expect soaring inflation, if not hyperinflation, with deep recessions and bank collapses distinct possibilities. Economists are warning the economy could contract by 5%.

Putin is a repressive and brutal kleptocrat. But his 20 years in charge have led to a form of stability and modest prosperity for many Russians. These latest economic depth charges have blown all that out of the water. 

Twitter: @mattiebrignal