Kyrgyzstan halts Russian money transfers amidst sanction fallout
Central banks of Kyrgyzstan have suspended money transfers to and from Russia due to currency rate instability and payment issues, as "The Moscow Times" reported. This is the effect of Western sanctions imposed on the Kremlin. Kyrgyzstan is considered a key ally of Russia, according to experts.
New Western sanctions on Russia took 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 a result of 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 serious difficulties—its website has stopped functioning, and clients are unable to log into their accounts. Similar problems are also affecting other Russian banks, which are blocking access for their clients due to a lack of sufficient 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 the same announcement.
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 travelled 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 the main source of foreign direct investment (FDI) in Kyrgyzstan. Chinese FDI in 2023 amounted to £173 million, nearly 28% of the total FDI—£625 million. The total value of Russian FDI amounted to £115 million, while Kazakhstan was the third largest foreign investor in Kyrgyzstan last year, with an amount of £53 million.
Kyrgyzstan is also part of the Eurasian Economic Union, which was established in 2014 by Russia, Belarus, and Kazakhstan. Armenia also joined the Union.
