The slump of the Russian ruble at the beginning of Russia’s invasion of Ukraine was a symbol of the isolation of the Russian economy, but under a series of capital controls by Moscow, the ruble has returned to pre-war levels, showing that even if Western sanctions are repeated, as long as they are not touched When you touch energy, you can’t stop money from flowing into Russia.
On Wednesday (6th), the United States joined the G7 and the European Union to announce the latest sanctions, targeting the two daughters of Russian President Vladimir Putin, more Russian elites, and the two major financial institutions of Russia’s Sberbank and Alpha Bank. People are also prohibited from making any new investments in Russia.
However, U.S. officials said energy deals were not affected by the new sanctions.
Sberbank, Russia’s bank with the most savings users, and Alpha, the country’s third-largest bank, said the new sanctions would not have a significant impact on operations.
The new wave of sanctions still hit Russian stocks, with the ruble-denominated MOEX index down 1.9 percent to 2,611.4 on Wednesday, nearly halving from its record high in October last year. Sberbank tumbled 8.1 percent on the day to 141.60 rubles ($1.78) a share, while VTB, which was sanctioned in early March, also fell 4.9 percent.
The dollar-denominated RTS index found support from a weaker dollar, closing up 3 percent at 1,034.79 on Wednesday.
The ruble showed renewed resilience on Wednesday, gaining more than 4 percent in thin trade to end at 79.7 rubles per dollar, a six-week high, after hitting 79.01 rubles, the level before Russia’s invasion of Ukraine on Feb. 23.
Why the ruble has risen
The ruble tumbled to an all-time low of 121.5 rubles to the dollar after Russia launched the so-called “special military operation”. It was described as “rubble” by U.S. President Joe Biden, which also reminded people of the early 1990s. Russia’s hyperinflation, and the Russian debt in 1998. The difference is that this time the ruble quickly regained lost ground.
The rapid recovery of the ruble has attracted the attention of many people who are concerned about the ruble. Therefore, even if the Russian army was in trouble on the Ukrainian front, Russian President Vladimir Putin still achieved a major domestic victory.
“It’s a great PR tool where politicians can claim that sanctions have had no impact,” said Guillaume Tresca, senior emerging markets strategist at Generali Insurance Asset Management.
Looking back at the history after the disintegration of the Soviet Union, the exchange rate of the ruble against the dollar can be said to be the economic indicator that Russians care about most. The ruble collapsed during hyperinflation in the 1990s and plummeted after the debt default in 1998. When the situation subsided, the government dropped three zeros from the ruble.
During the global financial tsunami in 2008, the Russian government spent billions of dollars to stop the devaluation and avoid a bank run. After 2014, although events such as Russia’s occupation of Crimea, sanctions, and the collapse of international oil prices have tested the ruble, the Central Bank of Russia chose to take a risk and make the ruble a free-floating currency.
In the face of this year’s sanctions, Russia chose to implement capital controls, including freezing non-resident assets and requiring Russian companies to exchange 80% of foreign currency for rubles. Russian President Vladimir Putin has repeatedly threatened to use rubles to repay debts, and also required foreign countries to purchase natural gas in rubles. , otherwise the supply will be discontinued.
Promsvyazbank said that the ruble’s recent recovery was mainly due to some exporters selling foreign currencies and import activity was sluggish, and the bank predicted that the ruble exchange rate will challenge 74-76 rubles to the dollar in recent days.
Some observers are less concerned about the ruble’s return to pre-war levels, citing strict capital controls that mean the ruble is no longer a free-floating currency, and ruble trading volumes have fallen to their lowest levels in a decade.
Oil and gas funds continue to flow in
Still, oil and gas continued to pour money into Putin’s war effort and remained a force to be reckoned with.Bloomberg estimates that even if Russia is isolated from the global financial system, it will still earn nearly $321 billion from energy exports this year, even more than a third more than in 2021.
Brendan McKenna, a strategist at Wells Fargo Securities, said that when other countries continue to purchase oil and gas from Russia, Russia will continue to maintain a current account surplus (that is, export sales are greater than imports), which will become a force to support the ruble, and naturally weaken the impact of Western sanctions on the Russian economy.
Although Putin was forced to change his strategy of aggression against Ukraine and shifted the focus to the east and south of Ukraine, if the Western countries want to continue to receive the effect of sanctions, they may have to change their strategy.
“The Russian economy and financial system have gradually found a new balance in the face of capital controls, price controls and economic self-sufficiency, which means that sanctions must be adjusted at any time,” said IIF economists Elina Ribakova and Benjamin Hilgenstock. , to be effective.”