The value of the ruble falls. All of the countermeasures taken by Russian President Vladimir Putin have so far come to nothing. Mikhail Klimentyev/Russian Presidential Press and Information Office/TASS]
The Russian ruble has continued to fall, breaking through another mark. As of the weekend, one ruble is worth less than one US cent. For one US dollar, more than 100 rubles had to be paid, for one euro even 110 rubles. Russia is trying to support the ruble with measures that seem increasingly hectic. So far, however, all rescue packages have fizzled out.
The Russian ruble broke through another mark as it tumbled. A ruble is now worth less than a US cent. So for one US dollar it was necessary to pay more than 100 rubles. On Monday, a dollar even cost over 101 rubles. The ruble also continued to lose sharply against the euro. The euro was quoted above 110 rubles.
The value of the ruble is the lowest it has been since March 2022. At that time, the ruble shot up briefly after Russia’s attack on Ukraine. For a few weeks, Russia benefited from the sharp increase in energy prices. But since the summer, the currency of the Russian war economy has been visibly deteriorating.
Before the first Ukraine war in 2014, when Russia occupied the Crimea peninsula, among other things, one US dollar cost around 30 US dollars. As a result of the Crimean crisis in 2014, the ruble fell to between 60 and 70 US dollars.
At current exchange rates, the ruble has lost more than 30 percent of its value against the dollar and the euro this year alone. Compared to 2014, before the start of the Russian attacks on Ukraine, the value of the ruble has roughly tripled.
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Just a few weeks ago, the Russian government around President Vladimir Putin and his head of the central bank, Elvira Nabiullina, called a range of 80 to 90 dollars per ruble as a “comfort zone”. The ruble broke out of this zone in early summer – reinforced by the short-lived uprising by the head of the Wagner mercenary troupe, Yevgenyi Prigozhin.
An economic adviser to President Vladimir Putin, Maxim Oreshkin, blamed the central bank’s easy monetary and credit policies for the collapse of the ruble. The increase in consumer credit is causing particular concern, the former economics minister wrote in an article for the Russian news agency “Tass”. However, the central bank has all the means “to normalize the situation in the near future”.
That is the question. Because for a few weeks now, Putin and Nabiullina have been trying to stop the fall of the ruble with increasingly hectic measures. As early as the summer of 2002, Putin had demanded that all countries purchasing energy from Russia pay for it in rubles and no longer in dollars, as stipulated in the contracts. The Western countries had not agreed to this. On the contrary: They have made themselves largely independent of Russian oil, gas and coal. Russia has also restricted or – as in the case of Germany – stopped its gas supplies to the West.
Since then, Russia has sought economic proximity to China and India. Countries are buying more oil and coal from Russia, but at lower prices. Putin is also counting on working with China to weaken the dollar and strengthen China’s yuan.
Russia’s imports also play an important role in the fall of the ruble and its consequences. When the sanctions began, imports plummeted because the West no longer supplied many goods to Russia. This also contributed to the brief pseudo-bloom of the ruble in the summer of 2022. Because the country spent fewer rubles on foreign exchange to buy goods abroad. The trade surplus grew strongly.
But Russia is dependent on imports in many areas. The country has now found other suppliers, such as Turkey. Either Russia purchases goods directly from these new partners, or Western goods subject to sanctions find their way to Russia in a roundabout way. But that doesn’t make the sanctions ineffective, because these imports are more expensive. Added to this is the weak ruble exchange rate. As a result, inflation in Russia is rising.
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In July, the central bank surprisingly increased the key interest rate sharply from 7.5 to 8.5 percent. Typically, higher interest rates support a currency because it makes it more attractive to investors. So far, however, the interest rate hike has fizzled out with no discernible effect on the ruble.
In the past week, Russia tightened its emergency measures. The Russian central bank stopped its foreign exchange purchases and started testing digital ruble.
Russia will stop buying foreign currencies on the world market by the end of the year, she said central bank. On the other hand, it will continue to buy rubles on the foreign exchange markets and sell foreign currency from its sovereign wealth fund worth up to 2.3 billion rubles or $23 million per day.
Before the attack, Russia had deliberately built up large foreign exchange reserves in order to be prepared for the costs of the war and possible sanctions. So warlord Putin can still support his currency for a while and also has foreign exchange to buy goods abroad. But his scope is narrowing. And: The weak ruble is making his war more and more expensive for Putin.
In a separate Explanation the central bank announced a pilot test for a digital version of the ruble. She’s been planning this move since July. The test has now started with a limited number of customers in 13 banks. The Central Bank of Russia also wants to introduce the digital currency for public use by 2025.
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