After Russia invaded Ukraine in late February, President Biden declared sanctions against Russia on March 8. Then, many European nations followed suit. It momentarily put a huge dent on the Russian economy. But against all odds, the Russian ruble has somehow bounced back in just weeks.
Thousands of sanctions were imposed against Russia. Biden has banned the buying of oil, petroleum products, natural gas, and coal. As a result, the ruble plummeted 30%. A single U.S. dollar was equivalent to 150 rubles by March 7. That was just two weeks into the war.
As the ruble was plummeting and as the war prolonged throughout March and into April, few would have imagined a rubel resurgence so quickly, and apparently not French Minister of Economy Burno Le Maire.
“We are going to wage a total economic and financial war on Russia,” Le Maire said. “We are going to cause the collapse of the Russian economy.”
Perhaps the long-term economic sanctions against Russia are still unknown, but in the short-term, Russia’s ruble is now back where it was prior to the first strike against Ukraine.
As many European countries have joined the fight against Russia by imposing its sanctions, it’s not an easy thing for the European nations to include oil in its sanction, a vital commodity. Germany and Italy have refused to include oil, as well as Japan. Germany, currently the largest economy in Europe, refuses to join the UK and the U.S. Germany imports 38% of its oil from Russia, and it’s not willing to cut that off so easily.
With so much money spent on the war, which is lasting much longer than Putin probably imagined, and so many sanctions against Russia, including NATO, which imposed nearly 4,000 sanctions, the question on Russia’s economic stability is simply, how?
Putin first demanded that oil be purchased in rubel. “I have decided to implement in the shortest possible time a set of measures to switch payment for … our natural gas supplied to the so-called ‘unfriendly countries’ to Russian rubles,” Putin said. Then, the Central Bank of Russia raised interest rates to maintain economic stability.
When the ruble’s value dropped by 30%, Russians were trying to quickly exchange rubles for dollars. But the raised interest rate from 9.5% to 20% helped to mitigate long lines at the bank for the exchange.
“The increase of the key rate will ensure a rise in deposit rates to levels needed to compensate for the increased depreciation and inflation risks,” according to the Bank of Russia. “This is needed to support financial and price stability and protect the savings of citizens from depreciation.”
Russia has one of the largest world reserves with $600 billion, as well as gold reserves. But the sanction against this reserve makes the dollars that Russians hold in various reserves around the world useless. And as Putin and other nations take note of this, they may be seeking other alternatives to the dollar. Currently, Saudi Arabia has accepted payment for oil in yuan from China for example.
While the world may be shocked by the ruble comeback, Dylan Grice, founder of Calderwood Capital, anticipated the effects of these sanctions that would represent “a turning point in monetary history” and “the acceleration towards a bipolar monetary order.”
