NewsKyrgyzstan banks halt Russian transfers amid Western sanctions

Kyrgyzstan banks halt Russian transfers amid Western sanctions

Vladimir Putin and the President of Kyrgyzstan, Sadyr Japarov, during the summit of former countries of the Commonwealth of Independent States in October 2023.
Vladimir Putin and the President of Kyrgyzstan, Sadyr Japarov, during the summit of former countries of the Commonwealth of Independent States in October 2023.
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4:06 PM EDT, June 13, 2024

"The Moscow Times" reported that Kyrgyzstan's central banks have suspended money transfers to and from Russia due to currency rate instability and payment issues. This is a result of Western sanctions imposed on the Kremlin, which, according to experts, considers Kyrgyzstan a key ally of Russia.

New Western sanctions on Russia came into effect on Thursday morning. As a result, Russian companies are practically cut off from easy access to euros and dollars.

The new settlement currency in Russia has become the Chinese yuan. The Bank of Russia emphasized in its communiqué that the role of the US dollar and euro in the Russian market has consistently declined over the past two years. This is due to redirecting trade flows to the East and changing the settlement currency to rubles, yuans, and other currencies of countries friendly to Russia. According to data from the Russian central bank, in May, the yuan's share in turnover on the Moscow stock exchange was 54%, making it the main currency in stock trading.

Sanctions imposed by the United States have also caused problems for Russian banks. According to media reports, Rosbank is facing severe difficulties – its website has stopped functioning, and clients cannot log into their accounts. Similar problems also affect other Russian banks, blocking access for their clients due to insufficient liquidity to withdraw their money.

A blow from an ally

On Thursday, Kyrgyz RSK Bank, the second largest lender in the country, announced that it is temporarily suspending money transfers due to technical problems. Kyrgyzkommertsbank and Kompanion Bank made similar announcements.

Meanwhile, Kyrgyz Mbank announced that restrictions on ruble conversion have been introduced due to exchange rate volatility and possible sharp fluctuations in the currency market. Additionally, as reported by The Moscow Times, ruble-denominated customer accounts are safe. Bai-Tushum and DemirBank made the same decision.

Kyrgyzstan, part of the Collective Security Treaty Organization (CSTO) that brings together certain Commonwealth of Independent States countries (Armenia, Belarus, Kazakhstan, Russia, and Tajikistan), suspended the acceptance of Russian Mir payment cards in April. This was also a result of complying with sanctions imposed by the USA.

"Key ally"

In April, the Centre for Eastern Studies (OSW) emphasized that Russia perceives Kyrgyzstan as a critical ally in Central Asia. This is evidenced by the fact that last autumn after the International Criminal Court issued a warrant for Vladimir Putin's arrest, the Kremlin leader traveled to Bishkek. At the same time, the Kyrgyz authorities show sympathy for Russia's authoritarian plans.

Despite political contacts, Bishkek has economically moved closer to Beijing. China has replaced Russia as Kyrgyzstan's primary source of foreign direct investment (FDI). Chinese FDI in 2023 amounted to 220.8 million USD, nearly 28% of the total FDI—798.2 million USD. The total value of Russian FDI amounted to 147.4 million USD, while Kazakhstan was the third largest foreign investor in Kyrgyzstan last year, with an amount of 67.3 million USD.

Kyrgyzstan is also part of the Eurasian Economic Union, which was established in 2014 by Russia, Belarus, and Kazakhstan. Armenia also joined the Union.

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