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Speaker 1: Good morning everybody. Welcome to the Daily OS. It is Thursday,

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Speaker 1: the third of March. I hope all of our listeners

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Speaker 1: on the East coast of Australia are staying dry and safe.

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Speaker 1: It's been a wild week of weather. I got to say,

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Speaker 1: the whole news cycle at the moment is quite wild.

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Speaker 1: We're going to do our best to take you through it.

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Speaker 1: I'm being joined later in the podcast by our journalist

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Speaker 1: Tom Crowley to talk you through sanctions and why they

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Speaker 1: matter to the Russian people.

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Speaker 2: Zara.

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Speaker 1: What's making headlines in Australia.

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Speaker 3: The death toll from the New South Wales floods has

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Speaker 3: risen to fall tragically after the body of a man

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Speaker 3: was located in a flooded unit in Lismore yesterday afternoon.

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Speaker 3: Residents in Baliner have been urged to evacuate as the

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Speaker 3: town continues to experience rising river levels.

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Speaker 1: Over to Europe now and it was reported yesterday that

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Speaker 1: Russia had escalated its attack on Ukraine. In Kharkiv, the

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Speaker 1: second biggest city in Ukraine, missiles struck a government building

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Speaker 1: and an opera house in Freedom Square, killing at least

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Speaker 1: ten people. In Ukraine's capital, Kiev, a TV tower was targeted,

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Speaker 1: killing at least five people, and a nearby Holocaust memorial

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Speaker 1: was damaged. The memorial is built on Europe's largest mass grave.

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Speaker 3: US President Joe Biden delivered the annual State of the

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Speaker 3: Union address yesterday, during which he said Russian President Vladimir

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Speaker 3: Putin will quote pay a price for invading Ukraine. Biden

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Speaker 3: also announced the US is bounding Russian aircraft from entering

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Speaker 3: US airspace.

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Speaker 1: An interesting piece of trivia on that one. It was

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Speaker 1: actually the shortest State of the Union address in about

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Speaker 1: ten years, still over an hour though. And today's good news.

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Speaker 1: After over seven hundred days of border restrictions, Western Australia's

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Speaker 1: borders are opening today. Triple dosed interstate travelers can enter

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Speaker 1: the state without quarantining if they complete a G to

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Speaker 1: G pass and if they take a rapid antigen test

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Speaker 1: within twelve hours of their arrival. Welcome back, wa For

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Speaker 1: today's podcast, we're going to shift focus back to Russia's

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Speaker 1: invasion of Ukraine, but we're going to look this time

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Speaker 1: at sanctions pressure.

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Speaker 2: Putin chose this war, and now he and his country

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Speaker 2: will bear the consequences. Today, I'm authorizing additional strong sanctions

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Speaker 2: and new limitations on what can be exported to Russia.

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Speaker 2: This is going to impose severe cost on the Russian economy,

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Speaker 2: both immediately and over time. We have purposely designed these

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Speaker 2: sanctions to maximize a long term impact on Russia.

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Speaker 1: Now, sanctions probably don't sound as dramatic or as intense

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Speaker 1: as some of the military language we're hearing at the moment.

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Speaker 1: But Tom, you've been looking closely at these sanctions and

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Speaker 1: came for you to explain to us today why they're

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Speaker 1: in fact a big deal. To begin the conversation, give

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Speaker 1: us a quick reminder what are sanctions and why should

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Speaker 1: we take this topic seriously?

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Speaker 4: Thanks? Sam So. The simplest way to describe us is

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Speaker 4: it's a financial penalty. So we live in a global economy.

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Speaker 4: Countries do all sorts of business with each other, so

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Speaker 4: if you want to hurt a country, you can take

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Speaker 4: away some of that business. Now, it may not sound

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Speaker 4: very significant. I think it kind of sounds like a

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Speaker 4: slap on the wrist. I think a bit like getting

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Speaker 4: away with a fine instead of going to jail. I

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Speaker 4: think that's the way people tend to think about it.

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Speaker 4: But that is really underestimating sanctions when they're on the

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Speaker 4: extreme end, the result can be enormously damaging, a huge depression,

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Speaker 4: a huge fallout for ordinary people. And that's what seems

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Speaker 4: to be brewing in Russia at the moment because of

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Speaker 4: sanctions from the West.

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Speaker 1: I'm caen to hear more about that fallout in Russia,

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Speaker 1: but first run me through what the sanctions actually are

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Speaker 1: at the moment. Sure, so it's a decent list. First,

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Speaker 1: the country is involved, so there's a huge spread the US,

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Speaker 1: the UK, Canada, most of Europe, Australia, Japan, Singapore, South Korea.

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Speaker 1: It's a huge chunk of the world, accounting for a

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Speaker 1: huge portion of the global economy. And they've imposed some

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Speaker 1: very serious penalties. So first, several Russian banks and a

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Speaker 1: bunch of members of the Russian elite have been cut

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Speaker 1: off from most forms of business with anyone in any

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Speaker 1: of those countries.

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Speaker 4: So they can't use the currency, they can't access any

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Speaker 4: of their wealth that they hold in those countries. It's

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Speaker 4: a big penalty. Then the banks have also been cut

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Speaker 4: off from the major international payment system, Swift. So we've

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Speaker 4: talked about Swift on the podcast before. That's the thing

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Speaker 4: that most banks use to make international transactions. So it's

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Speaker 4: a sledgehammer to Russia's imports and exports. And then finally,

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Speaker 4: Russia's government owned Central Bank, which is like the equivalent

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Speaker 4: of our reserve Bank here in Australia, has also been

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Speaker 4: frozen out of its foreign activities. So they're kind of

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Speaker 4: the three. And it's obvious enough, I think when you

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Speaker 4: hear that list that if you're one of the kind

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Speaker 4: of Russian elites, or if you're a Russian who does

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Speaker 4: a lot of international business, it's not hard to see

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Speaker 4: how that's going to hurt you. But I think it

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Speaker 4: is potentially less obvious how this can hurt everyday ordinary Russians.

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Speaker 4: So I'm keen to get into explaining that.

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Speaker 1: And so what you're talking about there is the pitches

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Speaker 1: that many of our listeners and readers on Instagram may

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Speaker 1: have seen of Russians queuing up outside banks and ATMs,

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Speaker 1: desperate to withdraw their money. So talk me through it.

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Speaker 1: How do these sanctions on Russian banks and Russian elites?

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Speaker 1: I know, the word oligarch gets thrown around a lot.

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Speaker 1: How do these sanctions make their way down to the

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Speaker 1: ordinary Russian family? Right, So it all starts with the

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Speaker 1: value of Russian money. So Russian money is the ruble,

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Speaker 1: and step one is the value of the ruble collapses,

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Speaker 1: and we're seeing that already. So the ruble plummeted thirty

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Speaker 1: percent on Monday to the lowest value it's ever had

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Speaker 1: in its history. Now, why does that happen. It happens

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Speaker 1: because nobody, no international investor, wants to have a ruble

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Speaker 1: if they can't buy anything with it. And so all

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Speaker 1: of these restrictions.

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Speaker 4: From the sanctions on what you can do with a

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Speaker 4: rubule makes it much less attractive to hold them, So

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Speaker 4: everybody wants to get rid of them, and it becomes

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Speaker 4: less valuable. So what that means in real terms is

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Speaker 4: that a ruble this week buys you much less than

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Speaker 4: a ruble did last week. Now, we've talked on the

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Speaker 4: pod before about what happens when your money becomes worthless.

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Speaker 4: That's what we call inflation. It can drive up the

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Speaker 4: cost of living, the cost of buying groceries for everyday Russians.

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Speaker 4: And when that sort of thing is happening really quickly,

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Speaker 4: like it is in Russia at the moment, people start

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Speaker 4: to panic, so they become really desperate to get rid

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Speaker 4: of all the rubles that they have because the rubles

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Speaker 4: are sort of like a hot potato. They're worried that

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Speaker 4: if they hold onto them for much longer, they'll become

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Speaker 4: totally worthless. And that's what gives you the cues outside

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Speaker 4: the banks. So people are desperate to withdraw all of

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Speaker 4: their money and to convert it if they can into

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Speaker 4: something else that's not plummeting in value. So that's the

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Speaker 4: kind of panic stations. It's what we call a bank run,

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Speaker 4: and it's the kind of thing that can happen when

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Speaker 4: things are going downhill, and that's what we're seeing at

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Speaker 4: the moment in Russia.

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Speaker 1: And so clearly the Russian government's focus is on an

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Speaker 1: invasion and that seems to be where at least from

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Speaker 1: the top and President Pusan, they're putting a lot of

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Speaker 1: their effort. But what can the Russian government do to

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Speaker 1: stop this? We know that, for example, in Australia, when

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Speaker 1: there's inflation or an economic crisis, the government will step

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Speaker 1: into help. Is that really an option for Russia here?

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Speaker 4: So it is an option. But this is where the

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Speaker 4: sanctions do their work again, because the Russian authorities have

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Speaker 4: their hands tight because of the sanctions, so they've kind

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Speaker 4: of had their best options taken away. So the first

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Speaker 4: thing that authorities do when they're worried about inflation is

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Speaker 4: they raise interest rates. Makes it more attractive to leave

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Speaker 4: your money in a bank, basically to get the interest rate.

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Speaker 4: So they're trying to stop everyone there from panicking and

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Speaker 4: taking all their money and dumping it. So Russia jacked

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Speaker 4: up it's interest rate to twenty percent, which is huge.

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Speaker 4: For contrast, our interest rate is zero point one percent,

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Speaker 4: So it's an enormous number and it's a sign of

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Speaker 4: I guess how desperate they are. But that's got consequences,

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Speaker 4: so it flows through, for example, to mortgage rates. So

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Speaker 4: mortgages have skyrocketed in the last week in Russia, which

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Speaker 4: is going to really hurt any Russians who own their

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Speaker 4: own homes. So, you know, the interest rate is one

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Speaker 4: of the tools that government has, but it's got some costs.

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Speaker 4: The other thing that central banks would normally do is

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Speaker 4: buy a lot of their own currency, buy rubles themselves.

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Speaker 4: So that might sound a bit strange, but what happens

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Speaker 4: when you do that is you kind of artificially create

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Speaker 4: demand for the ruble again and you push up the

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Speaker 4: value of it because you're going to buy a whole

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Speaker 4: lot of them, and central banks hold on to reserves

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Speaker 4: of foreign currencies so that they can do this kind

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Speaker 4: of thing in a crisis. Russia has reserves like that,

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Speaker 4: it owns a lot of foreign money which it could

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Speaker 4: be using right now to buy rubles and to try

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Speaker 4: and stem the damage. But again, here's the kicker. They

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Speaker 4: can't access a lot of them because of the sanctions.

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Speaker 4: So again they find that they've got their hand type

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Speaker 4: behind their back and they're limited in what they can

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Speaker 4: do to reduce the damage. So what they've done instead

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Speaker 4: is they've started demanding that Russian businesses buy the rubles

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Speaker 4: for them. But that's not necessarily a great business decision

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Speaker 4: for these businesses, even though it's something the government's asking

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Speaker 4: of them. So you know, that could push a lot

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Speaker 4: of them out of business, it could create more unemployment.

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Speaker 4: So really, I yes, like every different avenue we turn

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Speaker 4: down here, it's not looking great. It's an absolute disaster

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Speaker 4: really that's going to be unleashed on Russia's economy and

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Speaker 4: it's going to have some very real, very human consequences.

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Speaker 1: You know.

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Speaker 4: I think it's important to recognize that sanctions are not abstract,

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Speaker 4: that they affect people in the.

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Speaker 1: Real world, So you've used words they're like disaster, human consequences.

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Speaker 1: Is this as dramatic as you're making it out to be.

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Speaker 4: I mean, I think it is. I mean, obviously you've

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Speaker 4: got to put it in the context of you know,

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Speaker 4: very dramatic military actions that Russia's taking on the one hand,

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Speaker 4: and this is not the same as militarily intervening. It's

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Speaker 4: not the same as the West sending its troops in,

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Speaker 4: but it's very significant. So an economist that I spoke

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Speaker 4: to this week described it to me as economic warfare

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Speaker 4: and kind of like an economic siege. The idea is

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Speaker 4: sort of that you're, in a financial sense, you're blocking

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Speaker 4: all the roads out of the country and you're trying

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Speaker 4: to starve Russia out, and the West's hope is that

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Speaker 4: that is so painful for Putin that he stops his

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Speaker 4: invasion and changes his mind. Now, whether that works, whether

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Speaker 4: Putin cares about the economic costs here that that's an

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Speaker 4: open question. But in the meantime it's certainly going to hurt.

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Speaker 4: Russia is a world power in a military sense because

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Speaker 4: of all the nuclear weapons it has. But it's important

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Speaker 4: to remember Russia is not a world power in an

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Speaker 4: economic sense anymore. I think this is an amazing fact.

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Speaker 4: Russia's economy is about the same size as Australia's. It

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Speaker 4: is very dependent on selling oil and gas, and it's

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Speaker 4: not a huge economy, so cutting off its trade like

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Speaker 4: this is really going to hurt Tom.

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Speaker 1: There's a huge amount to think about there. Thank you

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Speaker 1: so much for that coverage. That's all we've got time

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Speaker 1: for today on The Daily OS. Happy Thursday everybody. If

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Speaker 1: you did like the podcast and you like having Tom

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Speaker 1: talk you through the world of economic sanctions, we'd love

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Speaker 1: you to rate this podcast. You can review it on

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Speaker 1: Apple Music or give it a star on Spotify. That's

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Speaker 1: all for today, though we'll speak to you tomorrow