Businesses Start to Sustain Damage from Currency War on Russia

This month brought the return of HBO’s House of the Dragon, a prequel spinoff of the network’s hit series Game of Thrones, which shares some striking similarities with the currency war currently raging in the real world. The start of the show’s second season finds author George R.R. Martin’s fictional kingdom of Westeros preparing for a bloody civil war precipitated by a squabble among the Targaryens, the realm’s ruling clan.

The currency war may not be as visceral as pitting dragon-riding family members against each other, but it’s inflicting collateral damage, nonetheless.

Currency wars refer to countries using currency policy to achieve geopolitical objectives. Western rivals have recently undertaken such a campaign against Russia in response to President Vladimir Putin’s invasion of Ukraine in 2022. Essentially, the United States and its allies are attempting to inflict pain on Russia by blocking its ability to participate in the global financial system.

The latest salvo in the conflict came earlier this month with the U.S. Treasury Department’s announcement of a new round of sanctions to squeeze the Kremlin. The Treasury Department has now flagged more than 4,500 sanctioned entities, which are effectively deemed to be organs of Russia’s national defense. In the eyes of the Biden administration, doing business with these entities is now tantamount to supporting Putin’s unprovoked aggression.

In a stark example of the impact of the new sanctions, the Moscow Exchange was added to the expanded list of entities. That, in turn, sparked a ban on trading of the dollar and the euro on Russia’s main exchange.

Meanwhile, foreign financial institutions are growing hesitant to lend to Russia for fear of getting blacklisted by the Treasury Department. That risk of losing access to the dollar is choking off the flow of funds to the Kremlin, according to the U.S. government.

Will the fallout from the latest currency war spur other nations to minimize their reliance on the dollar? The BRICS countries, for instance, could look at this moment as an opportunity to loosen the dollar’s grip on their economies. And keep in mind the possibility of the Chinese yuan gaining momentum as an international reserve currency – Saudi Arabia has already started showing favor to the yuan over the dollar.

For now, companies can only sit on the sidelines and hope the ongoing currency war doesn’t inflict too much harm on their businesses. There is increasing talk of currency wars in issuers’ latest annual reports, though. Visa Inc. disclosed the adverse impact of current sanctions on its operations and pointed out that these sanctions could ultimately cause some countries to abandon U.S. financial services companies altogether. Upwork Inc. said its business has been negatively affected by current measures, noting the risks associated with secondary sanctions, while apparel company Guess Inc. cited existing and future sanctions as risk factors that could adversely affect its results of operations.

In other words, this currency war could prove costly for all sides.