Sanctions by the U.S. and Western NATO allies helped send the Russian ruble tumbling in the weeks after its Feb. 24 invasion of Ukraine and some predicted that Russians would turn to cryptocurrencies such as U.S. dollar-pegged stablecoin Tether, but the collapse of the currency didn’t last.
After losing as much as 39 percent of its value, the ruble started strengthening when the Russian Central Bank raised interest rates as much as 20 percent to counter hyperinflation pressures and President Vladimir Putin implemented “massive capital controls” to help the currency.
U.S. President Joe Biden even mocked the ruble as “rubble”, only for it to bounce back, almost doubling its value from its low point touched on March 7 when it reached 130.89 against the dollar.
“Russia’s ruble is reduced to rubble. Their economy will be cut to half. The ruble is crumbling now,” Biden said during a speech on March 26 while visiting Poland, a country that has been taking in refugees from neighboring Ukraine.
Ongoing purchases of Russian energy from the European Union and other nations have also helped buoy the ruble and negate effects of the sanctions. Russia continues to export oil, gas and coal, Bloomberg Economics estimates that the nation’s energy exports will increase this year by one-third to $321 billion.
Europe’s dependency on Russian energy has been the Achilles heel of the Western nations’ sanctions on Russia. While the most European Union countries have agreed to ban Russian coal, they still hold on to oil and natural gas imports, largely because a total ban on Russian energy imports could set off a recession in Europe.
“(E.U. is) getting Russia quite a lot of rubles … and that means they are able to soften the blow to the economy,” Jane Foley, head of FX Strategy for Rabobank London, told CBS News. “That is helping to support the Russian ruble.”
The ruble is now about 20 percent stronger than before the invasion of Ukraine three months ago. Capital controls and surging energy prices that are being exported in rubles, not dollars, have helped Russia maintain both its currency and public support.
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The significant of the ruble recovery is more pronounced by Russians themselves more than anyone else.
Russians care most about the level of the ruble as an economic indicator than anything else. This focus emanated from the country’s post-Soviet history with the currency collapse being flagged as hyperinflation eruption in the early 1990s. The ruble dived again after Russia defaulted in 1998.
It is becoming clearer that the sanctions are proving toothless in taming the Russian economy and Putin’s plans. Russia has been able to stabilize local markets and even stave off a messy foreign default — at least for now.
Predictions are still showing that the Russian economy would fall 15 percent this year, according to the Institute of International Finance.
Photo: A currency exchange screen displays the exchange rates of U.S. dollars and euros to Russian rubles in downtown Moscow, March 29, 2022. (AP Photo)