Russia’s economy is under siege, but will the west break first?

theguardian.com:

It must have looked so simple for Vladimir Putin. Given his military superiority, a lightning strike by Russian forces would quickly overcome Ukrainian resistance and topple the regime in Kyiv.

The Kremlin would have bargained for the invasion being met with sanctions, but assumed these would be a minor inconvenience given the divisions in the west. But even if the measures were tougher than expected, Russia had a huge$630bn war chest of gold and foreign exchange reserves to support the economy.

The 19th-century German military strategist Helmuth von Moltke said no plan survives contact with the enemy and that was certainly true in this case. An increase in interest rates from 9.5% to 20%, the introduction of tough capital controls, the closure of the stock market and the clampdown on dissent all tell the same story: the campaign has not been the pushover Putin envisaged. The stiff resistance mounted by Ukraine was unexpected, as has been the west’s response. Russia’s economy is under siege.

While the targeting of oligarchs has grabbed headlines, by far the most significant sanction has been to limit Moscow’s access to its foreign exchange reserves, there to provide a defence against an attack on the rouble.

Reserves work in two ways. Firstly, they act as a deterrent, because those contemplating a speculative attack think twice if they know a central bank has the ability to slug it out. The bigger the reserves the less likely it is that a central bank will actually have to deploy them.

But if the “come and have a go if you think you’re hard enough” approach doesn’t work, a central bank with deep reserves can actively intervene in the currency markets. In the case of the central bank of Russia, that would involve converting