Assignment on:

Economic Implications for Exporters-Importers and Investors due to the

Russian Invasion of Ukraine.
Course Name:
IB 403 Foreign Exchange and International Banking.
Submitted to
Dr. Suborna Barua
Associate Professor
Department of International Business
University of Dhaka
Submitted by:

ID Name
SN-030-009 Naushaba Nur Rahman
JN-030-047 Joy Chandra Shil
SK-030-119 Nahian Islam Naheen
SN-030-124 Adrita Das
JH-030-131 Nishat Tarique

Date of Submission:

30 April 2022
Economic Implications for Exporters-
Importers and Investors due to the Russian
Invasion of Ukraine .

“BAN RUSSIA FROM SWIFT”. The placards on display at demonstrations across Europe
were signs of the times which represent the economic measures to cut Russia off from the
world’s financial arteries are the most powerful implements a west unwilling to meet a nuclear
adversary on the battlefield has dared to wield in response to the invasion of Ukraine. But it has
wielded savagely, no major economy in the modern world has ever been hit so hard by such
weapons. The use of sanctions is one of liberal internationalism’s most enduring innovations that
has boomed over the past few decades.

Ukraine and Russia have been engaged in a protracted battle since February 2014, after the
Ukrainian Revolution for prestige. The conflict has mostly centered on the territorial integrity of
Crimea and sections of the Donbas, which are universally recognized as being part of Ukraine.
On February 24, 2022, Russia launched an invasion of Ukraine as part of an intensification of the
Russo-Ukrainian War, which had begun the previous year. In terms of conventional military
might, it is the biggest assault on Europe since World War II.

Though Western sanctions started off a bit feebly, public opinion and Ukraine's inspirational
resistance quickly saw them toughened up. After debating whether to make it much harder for
Russian banks to process international payments by shutting them out of SWIFT some European
countries feared it would hurt their own banks. Western allies agreed to try targeting seven of
them, though it has steered clear of Sberbank, Russia's largest assets, which plays a big role in
processing energy payments. The USA has gone further, cutting off Sberbank and VTB, Russia's
second-largest lender, from its financial system. The most potent financial sanctions, though,
have been aimed not at Russia's commercial banks but at its central bank. In the eight years since
annexing Crimea made Russia the target of a first wave of sanctions, Mr. Putin's regime has built
up reserves (they now total $630bn) and shifted their composition away from dollars to help
insulate the economy from further punishment. But reserves become moot, whatever the
currency in which they are held, if they cannot be used. America, acting with Europe, has banned
a range of parties from transactions with Russia's central bank, on pain of enormous fines. That
will cripple Russia's ability to defend its currency. The West has also frozen most of the bank's
assets outside Russia. The way the Russian central bank had been accumulating and distributing
reserves suggested it did not believe the West would take such draconian measures. Within hours
of the sanctions taking effect, the central bank raised its main interest rate from 9.5% to 20% in
an attempt to shore up the currency. It ordered companies with foreign-currency revenues to
convert most of them into rubles, and told Russian banks to reject instructions by foreign clients
to liquidate Russian securities. Mr. Putin later banned anyone from taking more than $10,000 in
foreign currency out of the country. BP, Equinor and Shell, three oil majors, announced plans to
extricate themselves from their Russian ventures. Global commodity crises tend to cause severe
economic damage and political upheaval. Russia's invasion of Ukraine is unleashing the biggest
commodity shock since 1973, and one of the worst disruptions to wheat supplies since the first
world war. The turmoil unfolding in energy, metals and food markets is broad and savage.
Overall indices of commodity prices are now 26% higher than at the start of 2022. European gas
prices have almost trebled amid panic that pipelines from the east will be blown up or starved of
supply. Such are the consequences of Mr. Putin's decision to drive his tanks across the
breadbasket of Europe, and the subsequent isolation of Russia, one of the world's biggest
commodities exporters. Western sanctions on Russian banks have made lenders, insurers and
shipping firms wary of striking deals to carry Russian cargoes, leaving growing piles of unsold
industrial metals and an armada of vessels full of unwanted Urals crude. The U.S. dollar was
valued this week at about 80 Russian rubles, roughly the same exchange rate in effect before
Russia invaded Ukraine on February 24. Western sanctions had initially ravaged the Russian
currency, but it has bounced back. The Russians have targeted restoring the value of the currency
as a major objective. They are restricting the way in which foreigners who’ve invested in Russia
or anyone else for that matter, can sell rubles. And on the other hand, they are creating artificial
sources of demand for the ruble, what they’re doing, for instance, is requiring the Europeans
increasingly through direct or indirect means to pay for Russian gas in rubles. They are requiring
Russian exporters who are still able to earn foreign currency to exchange that for rubles; up to 80
percent of their export earnings have to go into ruble, increasing the demand for rubles. And
broadly speaking, Russia is running a giant trade surplus currently, and that would be the sort of
economic position from which is expected to appreciate the currency.

Effect on Bangladesh Foreign Exchange Market

The global foreign exchange market is greatly affected due to the Russia-Ukraine war.
Bangladesh foreign exchange market is also feeling the heat of the war in many ways. The
foreign exchange market is affected through the rise in import payments and reduction in
exports.

Russia is considered the third largest oil-producing country in the world. Due to the Russia-
Ukraine war, the global economy is suffering as a result of high oil prices. Being an oil-
importing county, Bangladesh's economy is already facing hurdles through high import
payments. The high price of oil affected the chain effect felt through a hike in the prices of gas,
fertilizer and other essentials. For this reason, Bangladesh is compelled to pay more foreign
currency than before which increases the demand for the US dollar. Resulting from this
increased demand, the price of US dollar and the foreign exchange rate are becoming higher. The
situation is explained through the following diagram-

BDT/USD S0
88
86
D1
D0

Q/USD
Russia is a market for Bangladesh’s ready-made garments products. Due to the Russia-Ukraine
war, shipment of the ready-made garments (RMG) from Bangladesh to Russia fall and the
payments from the buyers are declining day by day. Another reason for why many garment
suppliers are not receiving export receipts is that several Russian banks have been banned from
using SWIFT (The global payments messaging network). The ban also affects reducing the
remittance send by the citizens of Bangladesh work in Russia. As a result, the supply of foreign
currency (USD) is gradually decreasing that makes the price of US dollar and the foreign
exchange rate lower. The situation is explained through the following diagram-

BDT/USD S1
S0
88
86

D0

Q/USD
Effect on Bangladeshi MNC, investors and FDI
The Russo-Ukrainian war is causing a series of troubles for developing nations like Bangladesh
on both economic and geopolitical fronts. The economic shock will have immediate impact and
will be transmitted at a faster rate as Bangladesh is globally exposed mostly through trade while
the geopolitical difficulty will arise in near future depending on the flow of events that will
occur. In the last fiscal year, the total global trade of Bangladesh was worth USD 104.35 billion
while the bilateral trade with Russia was USD 1.14 billion. Due to sanctions, the disruption in
trade, especially exports will be costly. 95 percent of exports worth USD 665.30 million to
Russia was textile and clothing. Continuing textile exports have become difficult not only due to
surge in shipping charges but also due to challenges faced in retaining the export receipts as the
West have imposed sanctions on Russian banks to detach Russia from the global financial
system and to isolate their economy. Like the rest of the world, Bangladeshi banks will be
compelled to suspend direct transactions with Russian banks because they are largely dependent
on correspondent Western banks including the Federal Reserve Bank of New York to settle the
trade related payments with Russia. As there is no direct commercial connection between the
banks of Bangladesh and Russia, the correspondent banks act as intermediaries or agents
facilitating wired transactions, conducting business transactions, accepting deposits and
gathering documents on behalf of the banks of the two nations. The Rooppur nuclear power plant
project is also facing serious threats of delay and uncertainty as it is largely based on Russian
credit. The Russian bank for Development and Foreign Economic Affairs, which is facing
sanctions regarding SWIFT’s service, has asked Bangladesh to hold up transactions for the time
being.

Apart from these, Bangladesh is dependent on both Russia and Ukraine for the importation of
various agro products specially wheat and oilseeds. Due to international sanctions imposed by
US and EU, disruptions in imports have hiked up prices of staple foods in Bangladesh, amid
growing concerns over food security. The government is subsidizing the prices of energy and
fertilizer, which increased due to inadequate importations during the COVID-19 pandemic and
the Russo-Ukrainian conflict just added another blow to the existing volatile situation, pushing
the inflation further up and leading towards a declined economic growth. To protect the economy
in this challenging situation, the policy makers in Bangladesh should monitor the market closely
and quickly source commodities from the global market at competitive prices and distribute
essential commodities at reduced prices through open market sales. Bangladesh is considering
the currency swap mechanism as a tool to bypass the sanctions and continue financial
transactions with Russia but there is a risk of annoying the Western trade partners as the US and
the EU are the largest importers of Bangladeshi products.