(Bloomberg) – In the days after the start of the Ukraine war, the collapse of the ruble was a powerful symbol of Russia’s newfound financial isolation.
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International sanctions against Vladimir Putin’s government plunged her to a minimum of 121.5 rubles a dollar, reminiscent of the conflict she suffered during the 1998 Russian financial crisis.
Things seemed scary enough for US President Joe Biden to say that the ruble had been reduced to rubble.
Now, however, it has certainly not done so. The ruble has risen all the way back to where it was before Putin invaded Ukraine, ending at 79.7 in Moscow on Wednesday.
What has emerged is that despite an incredibly comprehensive package of sanctions against the Russian government and its oligarchs, and the flight of foreign companies, the measures are largely toothless if foreigners continue to consume Russian oil and natural gas – which support the ruble by store stock. Putin’s Fund.
READ: Japan will not ban Russian coal imports, says Mainichi
Even as Russia is largely remote from the global economy, Bloomberg Economics estimates that the country will make nearly $ 321 billion in energy exports this year, more than a third from 2021.
The rapid recovery from the ruble gives Putin a resounding victory in Russia, where many focus on the ups and downs of the currency, even as his army gets stuck in Ukraine and anger grows around the world over atrocities he has committed.
“For politicians, this is a good PR tool by saying that sanctions have no effect. And that will help curb the effects of inflation, “said Guillaume Tresca, a senior market analyst at Generali Insurance Asset Management.
In the history of Russia after the Soviet Union, the exchange rate of the ruble and the dollar has been the economic indicator that Russia cares about the most. The exchange rate was broadcast by foreign exchange outlets that sprang up in every town and city and flagged the collapse of the currency when hyperinflation broke out in the early 1990s. The ruble plunged again after Russia’s bankruptcy in 1998.
When this chaos subsided, the government dropped three zeros. Since the crisis of 2008, the government has spent billions of dollars slowing down the currency, partly to avoid intimidating the population and launching a raid on the nation’s banks. Central Bank Governor Elvira Nabiullina decided to cancel it in 2014 when sanctions for the annexation of the Crimea and declining oil caused it to float the currency.
In response to this year’s sanctions, Russia has imposed capital controls that also appear to support the ruble. It involves freezing assets owned by foreign investors and telling Russian companies to convert 80% of their foreign currencies into rubles.
This has led some observers to question the importance of the ruble’s recovery in value before the invasion – which is also happening amid the lowest trade volume in a decade. “This is not a free-flowing currency given all the measures that the authorities have taken,” Tresca said. U.S. Treasury Secretary Janet Yellen said the same thing on Wednesday when she testified before Congress, warning against drawing a deeper message on sanctions against the ruble.
Yet it is difficult to ignore the lifeline that other nations are throwing at Putin by buying his country’s oil and gas. Doing so gives Russia a trade surplus – an economic jargon to export more than you import, which tends to lift the country’s currency – and undermines the attempt to impose sanctions on Russia.
“The trade surplus should really be another source of stability for the ruble,” said Brendan McKenna, a strategist at Wells Fargo Securities LLC. “If energy prices remain high and the main importers of Russian energy and raw materials continue to buy, the current account balance should remain in surplus. He says the ruble could go up to $ 78, partly because of Putin’s coercion.
Russia has managed to stabilize local markets and even prevent a messy foreign default – at least for now. This means that if the coalition of governments that oppose Putin wants to damage the ruble again, they will probably have to change course. Just this week, the US Treasury Department ruled out payments of dollar debt from Russian accounts in US banks, an attempt to deplete Russia’s domestic reserves or defaults.
“As Russia’s economy and financial sectors adjust to the new balance of capital controls, price controls and economic autonomy, it is not surprising that some domestic markets are stabilizing,” said Elina Ribakova and Benjamin Hilgenstock, economists at the World Financial Organization. . “Sanctions have become an effective target and will need to be adjusted over time to remain effective.
They pointed to the possibility of tightening financial sanctions, even to disconnect more Russian institutions from SWIFT, a communication system used by banks to transfer money around the world.
Putin has been forced to change his war strategy in Ukraine and evacuate troops from Kyiv after failing to capture the capital. The analysis company Tellimer Ltd. warns against stepping up market meetings within negotiations to end war in Ukraine.
“Do not buy peace meetings,” said Paul Domjan, a senior expert at Tellimer. “Investors should be very vigilant against market attacks following news of peace talks. There will be plenty of false days when the world tries hard to end this war.
(Updates with a report that Japan will not ban Russian coal imports under the fifth paragraph.)
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