Affected by the sanctions, but not yet sunk: the ruble is almost back to its level before the war and the Western sanctions. It is currently trading at 83 rubles to the dollar, its February 23 level.
The wave of sanctions adopted since the outbreak of the Russian offensive against Ukraine had however caused the ruble to plunge to unprecedented levels and had begun to cause the beginnings of panic among Russian depositors, who had rushed to the counters to withdraw funds. On March 7, the ruble had fallen in session to 158 for 1 dollar, that is to say a valuation almost halved.
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A fall in the ruble has very concrete consequences for the Russians. It heralds a decline in purchasing power in this country where many products are imported. It makes traveling abroad more difficult. And above all, the ruble is a symbol. In this country which has already experienced an economic collapse at the time of the end of the USSR, confidence in the currency is low. A fall in the price recalls the period of instability of the 1990s, and therefore awakens a recent trauma among citizens.
An exchange control that does not say its name
This is why the State has applied itself to rapidly restoring the course of the currency. He did this by taking exceptional measures: companies were forced to immediately convert 80% of their export earnings into roubles; banks are prohibited from changing rubles into dollars and individuals with foreign currency accounts cannot withdraw more than $10,000 for the next six months.
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These measures establish, in fact, an exchange control, which revives the practices in force in the Soviet era. They resulted in the creation of a black market on which the dollar sells for around 180 rubles. But they were effective in bringing the official exchange rate down to a level that avoided a liquidity crisis for the banks.
“Russia has been helped by the surge in oil and gas prices in recent weeks. Its export earnings were twice as high, in the months of January and February, as in an ordinary period,” notes Julien Marcilly, Global sovereign advisory economist, a firm specializing in advising States.
Gas and oil sold in rubles
It is with the same objective that Russia now asks the countries judged “hostile”those who have adopted sanctions, to pay directly for their purchases of oil and gas in rubles, and not in dollars or euros, the currencies yet listed in the contracts. “It’s a way to force European companies to buy rubles, which will support the Russian currency,” explains the economist. “And it is also a gesture of sovereignty, because Russia could achieve the same result by obliging its companies to convert 100% of their export earnings into rubles,” adds Julien Marcilly.
Developed countries, for now, refused to pay in rubles. In response, the Russian president threatened to turn off the oil and gas tap. It remains to be seen whether Russia will actually carry out this threat, while 78% of its exported gas is sold to European countries, which earns it around 500 million dollars a day…
Inflation at 2% per week
At the same time, the Central Bank of Russia (BCR) intervened in the markets to support its currency. The sanctions resulted in the freezing of around half of the BCR’s foreign exchange reserves, valued at $630 billion. For a month, the central bank of Russia has nevertheless sold for nearly 40 billion dollars on the markets to restore a little oxygen.
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For the time being, Russia can therefore boast of having won the battle for the rouble. But she did not win the war. Indeed, sanctions have other deleterious effects in the medium term. Inflation observed in Russia since the beginning of the war reached 2% per week. If the trend continues, it could mean a price increase of 180% over one year.
In addition, the BCR had to raise interest rates to 20%, which will put a stop to private investment. The departure of foreign companies is also a blow. The Russian economy appears to be increasingly administered by the state and based solely on revenue from raw materials. According to an estimate published by the European Bank for Reconstruction and Development (EBRD), Russia’s GDP could fall by 10% in 2022. Before the war, this institution anticipated growth of 3%.