The endless parade of Western sanctions on Russia barely makes the news anymore. But this week the US Treasury did manage to conjure up something that has generated attention. In what may be the most ambitious package since the initial wave back in February 2022, the American authorities greatly increased the scope for applying secondary penalties on foreign financial institutions found working with restricted Russian entities, and placed the Moscow Exchange and its clearing house under blocking sanctions, among other measures.
The exchange subsequently announced that it was suspending all settlements in dollars and euros. It’s the latter that is the most interesting and has elicited the most chatter. But, before pursuing this train of thought, let’s dig into the nitty-gritty a little bit and sort out what is actually going to happen to currency trading in Russia.
To trade currencies on the Moscow Exchange, banks and other players send ‘buy’ and ‘sell’ bids to the exchange throughout the day. These buyers and sellers do not trade with each other directly but rather though the exchange’s clearing house, the National Settlement Center (NSC). In the evening, these trades would be settled by the clearing center, which had correspondent accounts in foreign banks for each currency.
In other words, currency trading on the exchange involved the participation of foreign banks. It was not an enclosed system such as trading in Russian stocks (where the shares of Russian co.
