It has plummeted by about 50% and rebounded by nearly 200%. Since the beginning of this year, the exchange rate of the Russian ruble against the US dollar has been on a “V”-shaped roller coaster.
It took just over two months for the Russian ruble to go from being the world’s worst-performing currency in March to being the world’s best-performing currency recently. How did such a “shattering reversal” come about?
The ruble was not beaten to the ground
Since the Russia-Ukraine conflict, Russia has faced multiple rounds of economic sanctions from Western countries, such as kicking Russia out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and imposing various bans on Russian import and export products.
Affected by this, the Russian ruble embarked on a “downward road” and fell to its lowest point this year on March 7: 1 ruble was exchanged for 0.0064 US dollars, less than 1 cent, which was 50% lower than before the conflict.
But then, the Russian ruble staged a shocking reversal, not only regaining lost ground, but also rising all the way.
On May 24, 1 ruble could be exchanged for a maximum of 0.018 US dollars at one time, a rebound of nearly 200% from the previous lowest point, and an increase of more than 35% compared with the beginning of the year. After entering June, the exchange rate is basically stable at about 1 ruble to 0.016 US dollars.
“The ruble is the world’s best-performing currency this year,” Bloomberg said.
The US “Business Insider” website reported on June 2 that Russia’s revenue from oil and gas exports this year may reach 285 billion US dollars, or 800 million US dollars a day from oil and gas, which is 20 percent more than last year.
The British “Guardian” published an opinion piece saying that Russia is winning the economic war launched by the West. A series of sanctions from the West not only did not crush the Russian economy, but instead pushed up energy prices and inflation in Western countries, making the ruble exchange rate stronger.
Government moves to stabilize exchange rate
What’s driving the ruble’s bottoming out?
Pang Ming, chief economist and chief strategist of Huaxing Securities (Hong Kong), told China News Agency that, subjectively speaking, Russia is in the process of trade settlement and debt repayment, capital control, and the establishment of a completely self-controllable payment system. A series of combined punches in other aspects offset the short-term depreciation pressure of the ruble.
“The ruble settlement order, which currently obliges more than 20 European companies to buy Russian gas in rubles, has supported the ruble exchange rate on the demand side, which is expected to gain even more support on the demand side, given the increasing demand for gas reserves for this winter.” Russia also allows companies and individuals to repay “unfriendly” countries and regions in rubles, which maintains international credit and partially offsets the pressure of ruble depreciation, Pang Ming said.
Second, the Russian Central Bank raised interest rates sharply in an emergency to smooth out market volatility, increase the willingness to save the ruble, and reduce the incentives for savers to run on the ruble and sell the ruble to buy foreign currency in a disguised form.
Once again, Russia has adopted a package of temporary capital such as restricting residents from withdrawing excess foreign currency from foreign currency bank accounts or remittances to foreign bank accounts, restricting foreign customers from withdrawing certain foreign currencies or selling ruble assets, and requiring oil and gas exporters to sell 80% of their foreign exchange earnings and purchase rubles. Control measures to stabilize the ruble exchange rate.
He also mentioned that Russia’s NSPK national payment system and Mir payment card, to a certain extent, avoided the inconvenience caused by the withdrawal of international payment giants from Russia and the exclusion of Russia from the SWIFT network, and ensured the normal operation of domestic bank transactions in Russia.
From an objective point of view, Pang Ming said that the strong international demand for Russia’s oil and gas, agricultural products, raw materials and other commodities has brought Russia’s trade surplus, as well as the international market’s continuous revision of expectations for energy prices, which supports the ruble exchange rate rebounding. The skyrocketing “V” situation has weakened the effect of Western sanctions on Russia.
What is the future of the ruble?
Peng Wensheng, chief economist of CICC, believes that the fundamental reason for the appreciation of the ruble against the market trend is Russia’s status as an important energy producer and exporter in the context of the rising importance of real assets. The recent experience of Russia shows that in the context of de-globalization and de-financialization, the importance of real assets has increased, and the supporting role of commodities for a country’s currency will increase.
Some analysts believe that the performance of the ruble in the first half of the year benefited from the strategic support of Russia’s energy weapons, and in the second half of the year, with the bullish international demand for food, the ruble will have a new “backing”.
“The strong trend of the ruble exchange rate in the short term shows that Russia’s finance and economy are still relatively stable as a whole. However, it must be seen that the ruble exchange rate is still uncertain in the medium and long term.” Pang Ming said.
For example, he said that the above-mentioned uncertainties are related to the intensity, scale, negotiation results and other progress of the conflict between Russia and Ukraine, and are related to the implementation and transformation speed of the European Union and other Western economies to adjust their energy structure and get rid of their dependence on Russian energy. The operation of Russia, Western countries and even the global financial market is related to the prospect of economic recovery. In addition to the US dollar and gold, the ruble urgently needs to find a stable and practical value anchor and measurement standard in the medium and long term. Linking to a basket of currencies or “oil and gas rubles” are all possible options in the future.