Mocked as ‘Rubble’ by Biden, Russia’s Ruble Is Back at Pre-War Level

"Russia will earn nearly $321 billion from energy exports this year"

Source: Bloomberg

In the days after the Ukraine war began, the ruble’s collapse was a potent symbol of Russia’s newfound financial isolation.

International sanctions on Vladimir Putin’s regime sank it to a record low of 121.5 rubles per dollar, triggering memories of the battering it took during the 1998 Russian financial crisis.

Things looked dire enough that U.S. President Joe Biden said the ruble had been reduced to “rubble.”

Now, though, it sure hasn’t. The ruble has surged all the way back to where it was before Putin invaded Ukraine, closing at 79.7 in Moscow on Wednesday.

What’s become clear is that despite an incredibly wide-ranging package of sanctions on the Russian government and its oligarchs, and an exodus of foreign businesses, the actions are largely toothless if foreigners keep guzzling Russian oil and natural gas — supporting the ruble by stocking Putin’s coffers.

Even as Russia remains mostly cut off otherwise from the global economy, Bloomberg Economics expects the country will earn nearly $321 billion from energy exports this year, up more than a third from 2021.

Russia's onshore currency recovers to pre-invasion levels

In Russia’s post-Soviet history, the ruble-dollar exchange rate has arguably been the economic indicator Russians care most about. The rate was broadcast by the exchange kiosks that sprung up in every town and city, flagging the currency’s collapse as hyperinflation erupted in the early 1990s. The ruble dived again after Russia defaulted in 1998.

Once that chaos subsided, the government lopped off three zeros. Then during the 2008 crisis, the authorities burned through billions of dollars to slow the currency’s slide, in part to avoid spooking the population and sparking a run on the nation’s banks. Governor Elvira Nabiullina decided to risk that in 2014 when sanctions over the Crimea annexation and slumping oil prompted her to switch the currency to a free float.

In response to this year’s sanctions, Russia has enacted capital controls that also appear to be supporting the ruble. That includes freezing the assets held by nonresident investors, and telling Russian companies to convert 80% of the foreign currencies they hold into rubles.

This has some observers doubting the significance of the ruble’s recovery to pre-invasion levels — which is also happening amid the lightest trading volume in a decade. “It is not a free-floating currency given all the measures imposed by the authorities,” Tresca said. U.S. Treasury Secretary Janet Yellen said basically the same thing Wednesday when testifying before Congress, warning against drawing deeper messages about sanctions from the ruble’s rebound.

Still, it’s hard to ignore the lifeline other nations are tossing Putin by purchasing his country’s oil and gas. Doing so gives Russia a current-account surplus — economics jargon for exporting more than you import, which tends to lift a the country’s currency — and undermines the attempt to pummel Russia with sanctions.

Russia has been able to stabilize local markets and even stave off a messy foreign default — at least for now. This means that if the coalition of governments who oppose Putin want to hurt the ruble again, they’ll likely have to change tack. Just this week, the U.S. Treasury barred dollar debt payments from Russian accounts at U.S. banks, an attempt to make Russia drain its domestic dollar reserves or default.

Editor’s note: Holding up against the ever-inflating fiat dollar is nice, but what ordinary Russians will be more concerned about is how well the value of their money holds up against egg, bread and milk.

  1. CharlesHomer says

    Here is an interesting look at how Washington planned to destabilize Russia:

    Washington seems to have failed to grasp the concept that we are no longer living in a unipolar world.

  2. SteveK9 says

    Michal Hudson:

    Russia had remained too enthralled by free-market ideology to take steps to protect its own agriculture or industry. The United States provided the help that was needed by imposing domestic self-reliance on Russia (via sanctions). When the Baltic states lost the Russian market for cheese and other farm products, Russia quickly created its own cheese and dairy sector – while becoming the world’s leading grain exporter.

    Russia is discovering (or is on the verge of discovering) that it does not need U.S. dollars as backing for the ruble’s exchange rate. Its central bank can create the rubles needed to pay domestic wages and finance capital formation. The U.S. confiscations thus may finally lead Russia to end neoliberal monetary philosophy, as Sergei Glaziev has long been advocating in favor of MMT [Modern Monetary Theory]. …

    What foreign countries have not done for themselves – replacing the IMF, World Bank and other arms of U.S. diplomacy – American politicians are forcing them to do. Instead of European, Near Eastern and Global South countries breaking away out of their own calculation of their long-term economic interests, America is driving them away, as it has done with Russia and China.

    Sergie Glazyev:

    The damage caused by US financial sanctions is inextricably linked to the monetary policy of the Bank of Russia …. Its essence boils down to a tight binding of the ruble issue to export earnings, and the ruble exchange rate to the dollar. In fact, an artificial shortage of money is being created in the economy, and the strict policy of the Central Bank leads to an increase in the cost of lending, which kills business activity and hinders the development of infrastructure in the country.

    1. Oscar Peterson says

      My question is how does Hudson’s point stack up against the the article posted here at AE several days ago which, in my reading, said that the Europeans will be paying Euros to Gazprom Bank which will then provide Rubles to Gazprom? As that piece noted, that really doesn’t seem likely to have much impact if that’s all that “paying in rubles” amounts to.

  3. Oscar Peterson says

    This is good to hear, but if we look at the total economic picture: status of the ruble; balance of payments; effect of sanctions on semiconductor, auto parts, commercial air travel, overall revenues and wages, etc; freezing of exchange reserves; need to replenish cruise missile stocks; and so on; where does Russia stand looking out over at least the medium term?

    What does the aggregate picture look like?

    How bad will the pain get, and can the Russian public and economy get through to the other side.

    One countervailing force is that the Ukrainian economy will be even worse off, as long as exports and imports are effectively blocked. Donbas can quickly transition to being part of the Russian economy.

    As I have said before, Ukraine (minus the parts controlled by Russia) will need to be given the Gaza Strip treatment if Putin is to force Kiev to accede to his demands. That means being in a position to control most of what can go in and out of Ukraine. With Belarus, Russia, Russia-controlled Black Sea waters and Transnistria forming most of the permitter, Moscow is already in fairly good shape. But what about the Polish/Slovakian border with Ukraine?

Leave A Reply

Your email address will not be published.