In years past, it was an axiom that sanctions against a country did not really work. Intended beneficiaries would cheat, secretly find other sources for what they needed, and so forth.

But it seems like these days, technological advances have changed that equation. One area where we have recently seen a significant effect of sanctions — real or threatened — is in currencies. Take these three situations:


The Turkish lira has been on the ropes all year anyway, down 24 percent since January, but 3 percent of that drop came in the last few days as the administration threatened sanctions against Turkey due to its detention of an American pastor. These sanctions were limited – prohibiting financial transactions with and freezing the U.S. assets and properties of two Turkish government officials – but they could be ramped up if there is no resolution on the pastor's detention.


The Russian ruble is down 8.5 percent this year, with more than one percent of that drop coming earlier this week. The catalyst is the possibility of new sanctions on Russian sovereign debt after Facebook announced that it found and deleted 32 fake accounts and pages likely tied to Russian operatives.


The most eye-popping of these situations is Iran's rial, which lost 18 percent of its value in just two days this week. That occurred as sanctions reimposed on the country related to its nuclear program start to be applied next week. Iran is also coping with inflation of more than 200 percent.

The primary reason these currencies are dropping in value is capital outflow. So clearly, economic sanctions do have some impact, even if they are simply in the news and under discussion.

Countries whose currencies are considered cheap may benefit from stronger exports, which are less expensive on the global market. But on the downside, imports to those countries are more expensive - and foreign investors may pause before pouring money into those countries, as repatriating profits could be problematic. The other major effect of course is inflation. Having to spend a lot more money for imports pushes the central bank to shift into hawkish mode and possibly raise interest rates, which by definition will slow down the economy.

My View: It is not easy, but if you are going to watch the global economy, you have to keep up with a lot of things happening at once. We talk a lot about tariffs, but currency movements like this can have even bigger impacts in the long run. As always, we will keep you in the loop as events develop.

For more City National commentary, subscribe to our newsletters.

If we can help you with any Foreign Exchange needs, please email or call (800) 447 4133.

The information in this report was compiled by the staff at City National Bank from data and sources believed to be reliable but City National Bank makes no representation as to the accuracy or completeness of the information. The opinions expressed, together with any estimate or projection given, constitute the judgment of the author as of the date of the report. City National Bank has no obligation to update, modify or amend this report or to otherwise notify a reader in the event any information stated, opinion expressed, matter discussed, estimate or projection changes or is determined to be inaccurate. This report is intended to be a source of general information. It is not to be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the reader’s specific investment objectives. Any financial instrument discussed in this report may not be suitable for the reader. Each reader must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this report and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.