SACHA PFEIFFER, HOST:
A full-blown financial crisis can be devastating for a country. Banks fail. Businesses go under. Vast numbers of people lose their jobs, and the economy gets pulled into a downward spiral. Could sanctions on Russia tip the country into that kind of economic collapse? NPR's Chris Arnold takes a look at what might happen.
CHRIS ARNOLD, BYLINE: Ken Rogoff is a world-renowned economist at Harvard who's spent his career studying financial crises. He also has many relatives who've emigrated from Ukraine, and he's spent time in Russia.
KEN ROGOFF: I've been a professional chess player. I've played, in my day, all the Russian world champions in chess.
ARNOLD: Rogoff says basically, a game of chess is being played right now. And since the U.S. and its NATO allies don't want to get into a shooting war with a nuclear-armed Russia, financial sanctions are the pieces in play. And he says the moves to sanction just about all of Russia's financial system were quick and powerful.
ROGOFF: The sanctions that they put in were very cleverly crafted to try to cause as much damage as possible to the Russian economy and as little damage as possible to the European economy and the rest of the world.
ARNOLD: Russia had amassed hundreds of billions of dollars worth of reserves in foreign currency, a financial war chest, basically to try to sanction-proof the economy. But the sanctions - they all but blew up that war chest. Severe restrictions on Russia's central bank cut access to much of that money, and Russian banks are largely being shut out of the global financial system. That's never been done to a world power like Russia, and it sent the value of its currency plummeting.
(SOUNDBITE OF MONTAGE)
UNIDENTIFIED REPORTER #1: Russian citizens flocked to banks and ATMs before the nation suffers widespread cash shortages.
UNIDENTIFIED REPORTER #2: The Russian ruble falling to record lows.
ARNOLD: The giant oil companies Exxon, Shell, BP - they all say they're pulling out of Russia. A massive shipping company is halting container ships to and from the country. So could Russia be driven into a really devastating financial crisis and depression?
ROGOFF: We definitely have the capacity to make that happen.
ARNOLD: But Rogoff says that would hurt ordinary people in Russia more than Putin, and it could take more than a year to play out. So...
ROGOFF: There is a question of how much pain we're trying to cause. We're trying to thread the needle.
ARNOLD: Thread the needle, he says, because more sanctions might also provoke Russia to lash out and escalate the crisis. Also, going further to say block Russia's oil and gas exports would hurt NATO countries, too. But probably the biggest factor at play is that it usually takes sanctions a long time to bear fruit and get a country to change its ways, and Ukraine does not have much time.
DANIEL FRIED: Much depends on the battlefield.
ARNOLD: Daniel Fried is a former U.S. Assistant Secretary of State who coordinated sanctions after Putin sent troops into Crimea in 2014. He says in the short term, sanctions alone cannot force a dictator to change course.
FRIED: If Putin thinks he can win, he will drive to conquer all of Ukraine or decapitate the government and put in a puppet.
ARNOLD: But he says if Ukrainians keep fighting with such heroic resistance and so many countries across Europe and the world keep moving away from Russia, further isolating it, then even in the shorter term, there's a chance that economic sanctions could help push Putin to back down.
FRIED: They show Putin that the West is not as weak and divided as he supposed. They show his people that there are consequences for what Putin is doing, nasty consequences. They show Putin's ruling elite that he's taking them into a very dark place.
ARNOLD: Other former officials say, too, weakening Russia with sanctions made down the road prevent Putin from aggression against other countries, but that's no help for Ukrainians right now facing Russia on the battlefield all alone. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.
