Russia's central bank hikes interest rates to 20% and buys gold as the ruble crashes to a record low following tough Western sanctions

• Russia's central bank more than doubled interest rates to 20% in an effort to avert the total collapse of the ruble.
• The country's currency went into freefall Monday after the US and its allies imposed tough new sanctions over the war in Ukraine.

Russia's central bank more than doubled interest rates to 20% on Monday in an effort to halt the collapse of the ruble, which has gone into freefall after the West imposed tough new sanctions over the war in Ukraine.

The Bank of Russia also said on Sunday that it would resume buying gold in the domestic market as it tries to shore up its finances and find ways around sanctions on its activity.

Russia's ruble crashed roughly 30% to a record low against the dollar on Monday morning in Europe, according to Bloomberg data. It stood at 108 rubles per dollar at 3.20 a.m ET.

The central bank said it would hike its main interest rate from 9.5% to 20% as it tried to limit the damage. The idea is that higher interest rates increase the return to investors, luring foreign capital to the country and pushing up the exchange rate.

It also banned brokers from selling securities on behalf of non-residents, with an eye to halting the decline in domestic asset prices. And it delayed the opening of the stock market, saying trading will begin no earlier than 3 p.m. Moscow time (7 a.m. ET), if at all. At the time of writing, the market was still closed.

Read more: What does Russia invading Ukraine mean for markets? 13 investing experts share their outlook on the Fed's likely response, short- and long-term trades, and whether bitcoin can ever become a 'safe-haven' asset

The US and its allies hit the country with tough new sanctions over the weekend after Russian President Vladimir Putin started what could be the biggest European conflict since World War II by invading Ukraine last week.

They have blocked certain Russian banks' access to the SWIFT global payments system, which is crucial to international money transfers. Analysts said the move is likely to be a major blow to the country's economy.

The US, European Union, UK, Canada and others also sanctioned the central bank, saying they intend to stop the institution using its $630 billion of international reserves to undermine other sanctions.

Economists said the sanctions could cause havoc in Russia. A collapsing currency is a huge danger as it could drive up the cost of imports and send inflation soaring. It also makes a country far less attractive to foreign investors due to the high levels of economic uncertainty.

"These are the conditions in which runs on local banks begin," said Neil Shearing, chief economist at consultancy Capital Economics.

A bank run is when huge numbers of people try to withdraw their money all at once, massively increasing the stress on the financial system. Such a panic already appeared to be materializing in Russia on Monday.

"All of this will accelerate Russia's economic downturn," Shearing said. "A fall in GDP of around 5% now looks likely."

Already on Monday, scores of Russians were lining up to withdraw cash from bank ATMs as the currency tumbled.