Why does the Russian ruble keep losing value?

Russian Ruble

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Since the beginning of the year, the Russian currency, the ruble, has lost 16 percent of its value against the dollar and 13 percent against the euro. This makes it the third worst-performing global currency so far this year, after the Egyptian pound and the Argentine peso.

Following the invasion of Ukraine in February 2022, the value of the currency fell immediately, but the country’s Central Bank and Ministry of Finance pumped money into the market and got it back up to 50 rubles to the dollar last July.

The world’s second-biggest oil exporter, after Saudi Arabia, has seen its currency tumble since the West imposed a price ceiling on Russian oil at the end of the year.

The ruble’s decline in recent weeks is due to higher imports and outflows of foreign capital, according to Russian officials. Large exporters exchange foreign currency for rubles to meet payment obligations to the state budget.

What role is energy playing?

The $60 per barrel price cap imposed by the European Union (EU) is costing the Kremlin more than $170 million a day, according to the Center for Research on Energy and Clean Air, a Finnish think tank.

Vladimir Putin, for his part, has agreed with British energy giant Shell the sale and transfer of €1.1 billion of his share in the Sakhalin-2 pipeline project in the Far East. Novatek, Russia’s second-largest natural gas producer, would acquire the equity stake.

On the other hand, several foreign companies left Russia because of the war in Ukraine. Bloomberg Economics estimates that they sold assets worth between 15,000 and 20,000 million dollars.

“The reasons behind the fall of the currency are the reduction in exports of oil, gas and, probably, a greater withdrawal of capital by companies resident in Russia, as well as foreign investors,” Elina Ribakova told DW. , from the Peterson Institute for International Economics (PIIE) think tank.

Do sanctions have a stronger effect?

Another factor is liquidity in dollar-ruble transactions, says Eric Hontz of the CIPE investment center, a think tank affiliated with the US Chamber of Commerce. Daily trade in rubles is only $1 billion. daily, down from more than $3 billion a day before the war, according to CIPE.

And then there are the rising costs of importing Western high-tech through third countries such as Turkey, Kazakhstan, China and Serbia, believes Albrecht Rothacher, who worked for 30 years at the European Commission. 

” Sanctions are having a stronger effect, particularly the EU embargo on purchases of Russian oil and oil products,” Ribakova said. But other experts believe the ruble’s weakness is a sign of the long-term damage that the costly war is doing to Russia’s economy, including its growing dependence on China.

What role is the Chinese yuan playing?

“China uses Russia as a new commodity colony on which it can impose discount prices on a captive supplier, wasting [Russia’s] dwindling assets unproductively in an unwinnable war of attrition,” Rothacher explains.

In January, Russia began selling its growing reserves of the Chinese currency. “There has been a substantial move towards the use of the yuan, which now accounts for more than 30 percent of transactions in the local foreign exchange market, but the yuan is not a fully convertible currency and its instruments are not as liquid as the dollar and the euro, so the transition to the yuan is still slow,” Ribakova said. “For the moment, the G7 currencies dominate international trade,” Hontz agreed.

What will happen in the coming months?

“It is highly probable that the ruble’s downward trend since mid-January has ended,” however, Alexei Antonov of investment website Alor Broker told DW. “We expect a gradual strengthening of the Russian currency,” he said.

Instead, economist Harutyunyan Alexander of the investment company Russ Invest believes that “the ruble may well continue to fall, in the absence of interventions, with the prospect of reaching the range of 84.5-86.5 rubles per dollar in the upcoming weeks”.