Russia’s economy is still exploited, but many billions of dollars are locked up abroad

Russia’s money stuck abroad has a knock-on effect on domestic affairs.

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• Russia’s external financial assets increased by $44.6 billion in the first seven months of 2024.
• Western sanctions and complex international regulations delay Russia’s foreign payments.
• Pressure from Western sanctions is mounting, making trade regulations more problematic for Russia.

Russia’s economy and trade have appeared resilient despite extensive Western sanctions over its invasion of Ukraine.

However, it appears that Russia has not been able to repatriate much money back home. Foreign financial assets – including accounts receivable – rose by nearly $45 billion in the first seven months of this year, according to a report from Russia’s Central Bank on Tuesday.

The data only show the increase in assets blocked abroad, not the total amount.

Russia’s foreign financial assets rose by $44.6 billion from January to July – more than double the $21.4 billion increase from the same period last year, according to the central bank’s report.

It did not provide a breakdown of assets, but said the increase was due to longer lag times and the “increasing complexity” required for foreign settlements. There was also an increase in other unspecified investments.

This money stuck abroad has an impact on firms’ liquidity, said Alex Isakov, Russian economist at Bloomberg Economics.

This is not the first time that Russia – a commodities giant – has had problems with trade revenues blocked abroad.

Last year, Russia admitted there were problems with the billions of Indian rupees it made from exports to India. The amount has since declined as Russian firms have been able to use the money to pay Indian exporters, Reuters reported on Wednesday, citing an unnamed Indian government source.

Frightened by secondary US sanctions, even Chinese banks do not want to deal with Russia

Even though Russia’s economy has improved in the 29 months since it invaded Ukraine, it has largely been driven by wartime state spending on military activities and subsidies.

Recently, Russia’s central bank signaled a “considerable” overheating of the country’s economy.

However, pressure from Western sanctions is growing rapidly as international banks refrain from processing transactions with Russia over fears of secondary US sanctions that were approved in December.

Now, almost all Chinese banks – even small regional ones – refuse to accept direct payment transfers from China to Russia, pro-Kremlin media outlet Izvestia reported on Monday.

Apart from problems with Chinese banks, Russian firms are also facing a shortage of Chinese yuan, which the country now relies on for trade.

Russia minimizes economic and financial risks

Moscow downplays the impact of Western sanctions.

On Wednesday, Russian Finance Minister Anton Siluanov said his country has a strong “shield” against external pressure, state news agency TASS reported.

“We have created a strong, sustainable financial base; we created financial infrastructure,” said Siluanov.

Russia is now rushing to create alternative payment systems, including crypto, to facilitate trade.

Reuters reported last Thursday that Russia and China were even planning to revive the ancient practice of barter trade to circumvent Western sanctions.