The war in Ukraine and Western sanctions are weighing on Russia, but they have not collapsed the country. Various factors are responsible for this. A major one is Elwira Nabiullina. The doctor of economics is the head of the Russian central bank.
Their task, especially at the beginning of the war, was to maintain monetary stability while protecting the country’s gold and foreign exchange reserves. She succeeded in both. In the spring of 2022, she adapted the Russian monetary system to the changed situation with quick ad hoc measures.
Their primary goal was initially to avoid massive capital outflows. Various capital market controls were introduced for this purpose. They consisted in making withdrawals only in roubles, capping foreign transfers and requiring companies to convert their foreign exchange earnings into roubles.
Stable currency and low inflation
Although the external value of the Russian currency fell very quickly immediately after the sanctions began, it recovered just as quickly. While one euro cost 144 rubles when it was low, currently only about 88 rubles have to be paid, depending on the daily exchange rate.
One aim of the sanctions was also to hit Russian consumers and thus turn them against the government. Neither has succeeded, because the feared run on their own savings did not materialize and with a view to inflation in the country, the Russians are currently living in almost heavenly times. After all, inflation in May 2023 was only 2.5 percent.
These are completely different figures than those we are used to from Germany and other European countries. Western products have not become a total scarce commodity in Russia either. It is true that many manufacturers stopped supplying the country directly with their goods. However, middlemen took their place.
They are now selling western products even without the consent of the manufacturers in Putin’s empire. This step made the supply chain longer. But the total disruption of supply chains that the West wanted did not happen.