Contrary to all expectations, the Russian currency has become the world’s best-performing currency against the dollar so far this year, even outperforming the well-performing Brazilian real.
Even the harshest economic sanctions in modern history, imposed by the US and Europe in response to the invasion of Ukraine, could not prevent the rise of the Russian currency.
Just two months after the ruble’s value fell sharply below one US cent, the currency has made a surprising comeback.
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On March 7, the currency hit an all-time low of 0.007 rubles per dollar. But now the Russian currency has appreciated about 15% against the US currency and is trading around 0.016.
According to experts, this is due to the tight capital controls imposed by the Kremlin, which caused Russians to line up at ATMs to look for dollars when the war with Ukraine began.
US Secretary of State Antony Blinken described the ban on Russian citizens from selling rubles to buy foreign currency as currency manipulation.
These controls served to freeze most of Russia’s foreign exchange reserves, both to compensate for the outflow of investment and capital, and to finance a longer-than-planned military occupation of Ukraine, at a time when the country most needed these resources. by the Kremlin.
Turkey and Argentina cases
What is unexpected in this recovery is that other countries that have taken similar measures, such as Turkey or Argentina, have had diametrically opposite results with disastrous results for their economies.
Both currencies hit record lows and are still struggling to recover today.
After realizing the international sanctions, the Kremlin began to take unprecedented measures for generations that did not live in the Soviet Union.
“The Russian central bank has had to significantly raise interest rates and tighten capital controls in response to Western sanctions,” Ben Laidler, global market strategist at investment platform eToro, told the BBC’s Spanish-language BBC News Mundo.
“Interest rates more than doubled to 20%. Russian exporters had to convert 80% of their foreign income into rubles and people were limited in how much they could transfer abroad,” he says.
One of the sanctions that affected Russia the most was the freezing of overseas accounts.
Another defensive measure for the Russian currency was to require buyers of natural gas to pay in rubles rather than dollars or euros.
Strategic retaliation against Europe
Although European countries are heavily dependent on Russian gas and are looking for alternative energy sources, it will take years for the European Union to complete the project of closing the supply from Russia.
Germany, one of the largest customers of Russian state gas Gazprom, has already agreed to pay in rubles, along with other large European buyers.
Analyst Levon Kameryan explains, “Russia’s decision is a strategic retaliation against the EU, leveraging its power as Europe’s main supplier of natural gas. The Old Continent was getting about 40% of its gas from Russia before the war in Ukraine.” in Scope Ratings.
Finally, higher commodity prices have also helped a lot. More expensive oil means that Russian customers will now have to pay more dollars per barrel and therefore need more rubles.
short term solutions
However, experts draw attention to these three factors? Tight capital controls, higher interest rates and higher commodity prices have only alleviated a rough year for the Russian economy.
“The rapid rise of the ruble is a problem for exporters and some domestic producers, putting pressure on sanctions. It also means less revenue for the budget,” says Scott Johnson, an economist covering Russia for Bloomberg Economics.
Could the ruble recovery be seen as a thermometer in whether sanctions are working?
According to Johnson, “it is tempting to view the recovery of the ruble outside of Russia as a sign that sanctions are not having the desired effect. But that is not entirely true.”
“The appreciation came largely from the forced conversion of export earnings and other capital controls that limited cash flow from abroad,” he explains.
“The ruble paints an accurate picture of the balance of payments, but not the economy as a whole, for which the outlook is more bleak,” he says.
Laids agree.
“The rally of the ruble may now be over. The strength of the currency has made Russian exports less competitive and tougher US sanctions have increased the likelihood of debt default.”
*This text was originally published on BBC News Brazil..
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source: Noticias
