Dollars Don’t Make Sense: How Russian Savers Responded to Sanctions

Abstract

Abstracts Theory suggests that financial sanctions provoke targets to de-dollarize because they raise the risks of holding dollars. However, sanctions can also cause target state currencies to depreciate, which should increase demand for dollars within those countries. This study examines how sanctions influence individuals’ desire for saving in foreign exchange (FX) like US dollars or euros. To do so, we draw on data from eight nationally representative surveys of Russian citizens before and after the imposition of Western sanctions in February 2022. We find that Russians’ preference for holding FX dramatically decreased after sanctions were imposed and that the fall in FX demand was most pronounced among wealthy Russians. A follow-up survey experiment further indicates that the drop in FX demand among wealthy Russians was driven by concerns about Western sanctions themselves rather than a response to the Russian government’s repressive FX policies. These results, which are consistent with the growing literature linking sanctions to de-dollarization, provide unique micro-level evidence from a high-profile sanctions’ episode, revealing how sanctions alter economic preferences within targeted states, across different groups within society.