A Kremlin aide was quoted by RIA Novosti, as saying that if the United States were to impose sanctions on Russia over Ukraine, Moscow might be forced to drop the dollar as a reserve currency and refuse to pay off any loans to U.S. banks.
Sergei Glazyev, who is often used by the authorities to stake out a hardline stance but does not make policy, was cited by RIA news agency as saying Moscow could recommend that all holders of U.S. treasuries sell them if Washington freezes the U.S. accounts of Russian businesses and individuals.
The U.S. Senate Foreign Relations Committee is preparing legislation to provide support to Ukraine and consulting the Obama administration on possible sanctions against individual Russians, the committee’s chairman said.
The committee was also consulting with President Barack Obama’s administration on possible sanctions against individuals ranging from visa bans and asset freezes to suspending military cooperation and sales, as well as economic sanctions.
“If sanctions are applied against state structures, we will be forced to recognize the impossibility of repayment of the loans that the US banks gave to the Russian structures. Indeed, sanctions are a double-edged weapon, and if the US chooses to freeze our assets, then our equities and liabilities in dollars will also be frozen. This means that our banks and businesses will not return the loans to American partners,” Glazyev said.
Additionally, Glazyev said, Russia would likely dump the dollar to reduce its dependence on the U.S. financial system and switch to other currencies. “We will have to move into other currencies, create our own settlement system.”
He added: “We have excellent trade and economic relations with our partners in the east and south and we will find a way to reduce to nothing our financial dependence on the United States but even get out of the sanctions with a big profit to ourselves.”
In addition to battering the banking system, Russia has the ability to inflict serious economic damage on Europe. As noted in a report issued by the Capital Economics research group, Russia is a major supplier of oil to Germany, the Netherlands, and “Western Europe generally.” The market share of the Russian gas giant Gazprom is expected to grow in the years ahead.
A document leaked in the UK suggests ministers there are second guessing sanctions due in large part to the risk of losing Russian investment in the country. It would, instead, support visa restrictions and travel bans.
The Obama administration has vacillated on sanctions, although Obama is reportedly considering issuing an Executive Order without the consent of Congress. The administration has so far taken largely token steps, including suspending preparations for the annual G8 summit scheduled for Sochi in June. Obama has also nixed trade and energy talks with Russia and has withdrawn the American delegation for the Paralympics in Sochi.
Sanctions imposed by the United States will need the support of Britain and Europe.
“Unilateral U.S. sanctions against Russia are not going to have much an effect if Europe remains a haven for Russian banks and Russian oligarchs to stash and invest their money,” said Senator Chris Murphy, a Connecticut Democrat. “If the United States shuts its economic doors to Russia and Europe leaves its doors open, there won’t be much change in behavior from Moscow,” he said.
U.S. lawmakers have proposed an aggressive round of sanctions against Russian banks. Congress also wants to freeze the assets of Russian public institutions and private investors. In addition to sanctions on Russia, lawmakers are looking at generous loans for the coup regime in Kyiv that overthrew the elected government of Ukrainian President Viktor Yanukovych.