- Cristina J. Orgaz @cjorgaz
- BBC News World
an hour ago
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Unexpectedly, the Russian currency has become the best performing currency in the world once morest the dollar so far this year, even surpassing the Brazilian real.
Even the fastest and toughest economic sanctions in modern history imposed by the West in response to the invasion of Ukraine were unable to stem its rise.
Just two months following the value of the ruble fell to less than one US cent, the currency has taken a surprising turn.
If on March 7 it reached historic lows at 0.007 rubles per dollar, so far this year the Russian currency has appreciated by regarding 15% once morest the US currency and is trading around 0.016.
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The key, experts say, was the tight capital controls imposed by the Kremlin that left behind, when the war with Ukraine began, images of people queuing at ATMs.
The ban on its citizens selling rubles to buy foreign currency has been described by US Secretary of State Antony Blinken as currency manipulation.
These controls served to freeze much of Russia’s foreign exchange reserves when it needed them most, both to offset the outflow of investment and capital and to fund the military invasion of Ukraine. , longer than expected.
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On December 3, 2001, the government of Fernando de la Rúa restricted the withdrawal of money from banks in Argentina.
The case of Turkey or Argentina
What is unexpected in this recovery is that other countries, such as Turkey or Argentina, which have been forced to impose similar measures, not only have not obtained the same results as Russia, but reading it like the peso had disastrous consequences.
Both currencies have reached historic lows and are still struggling to recover.
In its emergency action immediately following learning of the international punishment, the Kremlin began adopting measures unknown to generations who did not live in the days of the Soviet Union.
Learn more regarding the Ukrainian crisis
“The Russian central bank has been forced to dramatically raise interest rates and tighten capital controls in response to Western sanctions,” Ben Laidler, global markets strategist at investment platform eToro, told the BBC. World.
“Interest rates more than doubled to 20%. Russian exporters were forced to convert 80% of their foreign income into rubles, and people were limited in how much they might transfer abroad” , he adds.
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Long lines in front of ATMs have become a common sight in Russia.
And it is that one of the most important and impactful sanctions once morest Russia has been the freezing of its accounts abroad.
Another of the measures to defend its currency was to require that the countries of the European Union which buy natural gas from it, pay their bills in rubles, instead of dollars or euros.
Strategic reprisals once morest Europe
European countries are heavily dependent on Russian gas, and despite plans to find alternative energy sources, the European Union’s plan to cut supplies from Russia will take years to materialize.
Germany, one of Russian gas company Gazprom’s biggest customers, has already agreed to pay in rubles with other big European buyers.
“Russia’s decision is a strategic riposte once morest the EU, taking advantage of its power as Europe’s main supplier of natural gas. The Old Continent received around 40% of its gas from Russia before the war in Ukraine “, explains Levon Kameryan, senior analyst at Scope Ratings.
Finally, the rise in commodity prices also helped a lot.
More expensive oil means that Russian customers will now have to pay more dollars per barrel and will therefore need more rubles.
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Short term solutions
However, experts point out that the three factors – tight capital controls, higher interest rates and higher commodity prices – have only succeeded in slowing down what will be a “dismal” year for the economy. Russian economy.
“The ruble’s rapid rise is a problem for exporters and some domestic producers, adding to sanctions pressure. It also means less revenue for the budget,” says Scott Johnson, an economist covering Russia for Bloomberg Economics.
But can the ruble’s rebound be considered a barometer of the effectiveness of Western sanctions?
For Johnson “from outside Russia, it is tempting to see the rebound of the ruble as a sign that the sanctions are not having the desired effect. But this is not entirely correct”.
“The appreciation was largely driven by the mandatory conversion of export earnings and other capital controls, which limit the flow of cash from abroad,” he explains.
“The ruble gives a true picture of the balance of payments, but not of the underlying economy, where the outlook is bleaker,” he says.
Laidler thinks along the same lines.
“Ruble’s rally may now be over. The strength of the currency has made Russian exports less competitive and tougher US sanctions have increased default risks.”
