The United States and Canada dealt a crushing blow to the Russian economy on Monday as they blocked engagement in any transactions involving the country’s central bank, in further punishment of Moscow over its invasion of Ukraine.

These new moves, along with others taken by allies in Europe, will make it hard for the Russian central bank to use its vast reserves of hard currency to buy rubles, the value of which collapsed against the dollar and euro on the Moscow Stock Exchange.

The fierce sanctions imposed by the U.S., which also bar transactions with Russia's finance ministry and national wealth fund, are likely to jack up Russian inflation higher, cripple its purchasing power and drive down investments, U.S. officials said on Monday as the new measures took effect.

The move comes after the U.S. and its allies last week imposed several rounds of sanctions targeting Moscow, including against Russian President Vladimir Putin and Russia's largest lenders, after the country's forces invaded Ukraine.

"Our objective is to make sure that the Russian economy goes backward if President Putin decides to continue to go forward with an invasion in Ukraine and we have the tools to continue to do that," a senior U.S. administration official said on Monday.

Canadian Finance Minister Chrystia Freeland said the ban is meant "to ensure that Russia's invasion of Ukraine will be a strategic failure."

"Canada is firmly on the side of the heroic resistance of the people of Ukraine and we will continue to take further action to ensure President Putin does not succeed," she said in a statement.

The U.S. official said the package of coordinated sanctions will create a "vicious feedback loop," and Moscow "will be forced to deplete their domestic rainy day fund far more quickly, experience a weakening of their currency making funding their war of choice much more expensive."

"Inflation is very likely to spike. Purchasing power is likely to plummet. Investment is likely to plummet," the official said.

Talks between Russian and Ukrainian officials began on the Belarusian border on Monday, as Russia faced deepening economic isolation four days after invading Ukraine in the biggest assault on a European state since World War II.

The U.S. Treasury Department in a statement on Monday said it had also slapped sanctions on a key Russian sovereign wealth fund, the Russian Direct Investment Fund, its management company and its chief executive, Kirill Dmitriev, whom Washington accused of being a close ally of Putin.

Major Western economies have launched moves to exclude Russian banks from the main global payments system while imposing curbs on Russia's central bank to undermine its ability to support the ruble and finance Moscow's war effort.

The U.S. and its allies had announced on Saturday they would take action against Russia's central bank and bar some of the country's banks from the SWIFT international payments system, in a move that experts saw as a significant escalation of the West's sanctions against Moscow.

What are Russia's reserves made of?

In an emergency move, the Russian central bank raised its key interest rate to 20% from 9.5%. Authorities told export-focused companies to be ready to sell foreign currency.

It also ordered brokers to block attempts by foreigners to sell Russian securities.

The U.S. official on Monday said the measures "immobilized" any assets Russia's central bank held in the United States in a move that will hinder Russia's ability to access hundreds of billions of dollars in assets.

"Putin's war chest of $630 billion of reserves only matters if he can use it to defend his currency, specifically by selling those reserves in exchange for buying the ruble," a second senior administration official said.

"After today's action, that will no longer be possible and 'Fortress Russia' will be exposed as a myth."

The following is a breakdown of Central Bank of Russia reserves, according to its own data. It refers to the data in the right-hand chart as "the geographical structure of assets by place of residence of counterparties or issuers of securities."

Mark Sobel, a former senior Treasury official who serves as the U.S. chairperson of the OMFIF forum for central banking, economic policy and public investment, said the action was a "tremendous example of Western unity."

"This all happened overnight, and the force of it basically cutoff a significant country from the global financial system overnight. And there's no precedent for that," Sobel said.

Energy supplies

The Treasury issued a general license alongside Monday's action authorizing certain energy-related transactions until June 24.

U.S. President Joe Biden's administration has been concerned that its sanctions could raise already high gas and energy prices and has taken steps to mitigate that.

The U.S. officials said Washington would continue to tailor its measures against Russia to limit the impact felt at home and allow for steady energy supplies to global markets.

They also warned that the U.S. would not hesitate to impose more consequences on Russia and was actively exploring measures that would cutoff Russia from critical technologies it needs to remain a major energy producer in the longer term, citing similar steps already taken by the European Union.

They said Washington was also watching Belarus's involvement closely, adding that the strong Russian ally could face more punitive action if it continues to aid Moscow in the invasion.

"These are serious consequences for Russia's unprovoked invasion of Ukraine and we won't hesitate to level more if necessary," the first official said.