Ruble’s remarkable rebound
Recovery of Russian currency may mean Western sanctions are not as strong after all
WASHINGTON — The ruble is no longer rubble.
The Russian ruble bounced back this week from the fall it took after the U.S. and European allies moved to bury the Russian economy under thousands of new sanctions over its invasion of Ukraine. Russian President Vladimir Putin has resorted to extreme financial measures to blunt the West’s penalties and inflate his currency.
While the West has imposed unprecedented levels of sanctions against the Russian economy, Russia’s Central Bank has jacked up interest rates to 20% and the Kremlin has imposed strict capital controls on those wishing to exchange their rubles for dollars or euros.
It’s a monetary defense Putin may not be able to sustain as long-term sanctions weigh down the Russian economy. But the ruble’s recovery could be a sign that the sanctions in their current form are not working as powerfully as Ukraine’s allies counted on when it comes to pressuring Putin to pull his troops from Ukraine. It also could be a sign that Russia’s efforts to artificially prop up its currency are working by leveraging its oil and gas sector.
The ruble has recently been trading at roughly 85 to the U.S. dollar, about where it was before Russia started its invasion on Feb. 24. The ruble had fallen as low as roughly 150 to the dollar March 7, when news emerged that the Biden administration would ban U.S. imports of Russian oil and gas.
Increasingly, European nations’ purchases of Russian oil and natural gas are coming under scrutiny as a loophole and lifeline for the Russian economy.
“For Russia, everything is about their energy revenues. It’s half their federal budget. It’s the thing that props up Putin’s regime and the war,” said Tania Babina, an economist at Columbia University who was born in Ukraine.
Babina is currently working with a group of 200 Ukrainian economists to more accurately document how effective the West’s sanctions are in stymying Putin’s war-making capabilities.
The ruble has also risen amid reports that the Kremlin has been more open to ceasefire talks with Ukraine. U.S. and Western officials have expressed skepticism about Russia’s announcement that it would dial back operations.
President Joe Biden promoted the success of the sanctions — some of the toughest ever imposed on a nation — while he was in Poland last month.
Russian efforts to counter those sanctions by propping up the ruble can only go so far.
Russia’s Central Bank cannot keep raising interest rates because doing so will eventually choke off credit to businesses and borrowers. At some point, individuals and businesses will develop ways to go around Russia’s capital controls by moving money in smaller amounts. As the penalties depress the Russian economy, economists say that will eventually weigh down the ruble. Without these efforts, Russia’s currency would almost certainly be weaker.
But Russia’s oil and gas exports have continued to Europe as well as to China and India. Those exports have acted as an economic floor for the Russian economy, which is dominated by the energy sector.
The White House and economists have argued that the impact of sanctions takes time, weeks or months for full effect as industries shut down due to a lack of materials or capital or both.