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Russia is now the most sanctioned nation in the world. How is it coping?


What happens when your country abruptly is unplugged from the global economy? Russia is finding out. The value of the ruble has crashed, and sanctions affect all parts of the economy there. From the team at NPR's Planet Money, Erika Beras spoke with an economist who says a recession is looming.

ERIKA BERAS, BYLINE: For most of his life, Sergei Guriev lived in Russia. He's an economist who is now in Paris. Three weeks ago, before Russia invaded Ukraine, he called his parents in Moscow.

SERGEI GURIEV: I told them that I think there will be a major assault on ruble, and they should also take dollars out of the bank.

BERAS: He was worried about the ruble losing value, so he told them, exchange your rubles for euros or dollars.

GURIEV: I also told them that they need to think about buying medicines because those may not be imported anymore. Precisely, we were talking about insulin. My mother has diabetes, and so she needs insulin every day. It's a vital issue for my mother.

BERAS: His parents took his advice, and then what Sergei feared would happen did. Russia invaded, sanctions followed, the ruble dropped.

GURIEV: Nobody would have predicted 2022 because it's just beyond belief what's happening.

BERAS: Sergei knew what to tell his parents to do because Russia has experienced currency collapse before, twice in the '90s and then again in 2014. That was right around the time Sergei was politely encouraged to leave Russia for speaking out against President Vladimir Putin. For each of those collapses, it was better to hold foreign currency. Another option - storing money in goods that would hold value better than the ruble.

GURIEV: They bought iPhones. They bought cars. Richer people bought real estate. You can buy a toaster or a dishwasher, right? Today, you see that you can protect your cash, which is losing value every day.

BERAS: After the sanctions kicked in, Russian people lined up at ATMs. The Russian government started limiting how much people could withdraw in foreign currency. And to try to head off bank runs, the Russian central bank doubled interest rates to 20%, essentially telling people keep your money in your savings account. It'll make more interest.

GURIEV: The central bank is worried that Russians will run away from rubles to dollars, so the banks are now taking your rubles and give you 20% per year instead of 10 like they have before.

BERAS: But high interest rates have other effects, too. Say you want to borrow money to buy a house or you're a small business owner. You're not going to want to pay 20% on a loan, so chances are you decide not to borrow. And just like that, money stops moving. The economy flattens. That leads to recession. By one estimate, Russia's economy could shrink by 35% this quarter.

How do you feel watching this happen?

GURIEV: First and foremost, of course, I feel the human tragedy, which is happening on the ground in Ukraine.

BERAS: He says it's a tragedy for regular people in Russia, too.

GURIEV: There will be not just low growth, there will be recession and lower quality of life. And in that sense, I feel sad as an economist.

BERAS: When Sergei called his parents a couple weeks ago, he wasn't just checking in on their supplies of insulin and dollar bills. He also bought them one-way plane tickets out of Russia.

Erika Beras, NPR News.

(SOUNDBITE OF PATTY LARKIN'S "BOUND BROOK") Transcript provided by NPR, Copyright NPR.

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Erika Beras
Erika Beras (she/her) is a reporter and host for NPR's Planet Money podcast.