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"
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.
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.
One month on from the Russian invasion of Ukraine, Russia is not selling its Central Bank gold reserves, but the US is selling SPR oil reserves. 🤔
Let’s watch. pic.twitter.com/FY9TYDxujy
— Luke Gromen (@LukeGromen) March 31, 2022
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.
*RUSSIAN RUBLE RALLIES BACK TO LEVEL SEEN BEFORE UKRAINE WAR
When push comes to shove, the real value in the Petrodollar system is the "Petro-" portion, not the "-dollar" portion.
Feel free to get on your bicycle & pedal to Cleveland to discuss w/me over beers 🍻
— Luke Gromen (@LukeGromen) April 6, 2022
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.