Russian roubles

When Russia invaded Ukraine, global outrage meant that the action would not go unpunished. While Ukraine begged for no-fly zones and military aid, the rest of the world’s leaders, shackled by fears of triggering WW3, chose to instead impose a raft of economic sanctions, aimed at crippling Russia’s economy and war machine.

The list of sanctions against Russian companies, banks, politicians and business leaders is impressive and had the effect of limiting Russia’s ability to finance its war against its neighbour.  Assets were frozen, banks and credit facilities blocked, exports halted, imports restricted.  The main economic indicator, the Rouble, went into free fall, falling from 76¢ to 135.5¢ against the USD (figure 1) and inflation was rampant.

The Russian currency briefly flirted with junk status and the sanctions appeared to be doing what was intended – bring Russia to financial oblivion.

But the Rouble has staged something of a recovery to now being equal to pre-invasion levels.  And this is posing something of a problem for the West.

It seems the world cannot live without Russia’s gas and oil.  Wheat exports are also now expected to be around 34mmt, or 2mmt more than the USDA’s most recent estimate.  Putin ordered that all exports be paid for in Roubles, creating demand for the currency and pouring billions back into the Russian economy.  It is also a massive PR ‘shot in the arm’ for Putin and his propaganda team, demonstrating that despite the sanctions and embargoes, mother Russia is strong enough to withstand all efforts from the West.

The question is, is this rise from the ashes little more than a house of cards? 

Putin ordered a raft of ‘counter sanctions’ including that any banks or corporations holding foreign currencies immediately convert 80% of their value into Rouble.  Non-resident investors had all their assets frozen, creating a facade of currency demand.  And the fact that neighbouring countries cannot ween themselves off Russian oil and gas (at least in the short term) is creating a current account surplus, which in itself, is supportive of the currency.

What does it mean?

If the West is to achieve its aim of financially strangling the country, new sanctions will need more bite.  

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Key Points

  • Western sanctions against Russia sent the Rouble into free-fall.
  • Rouble now equal to pre-invasion levels.

Click on figure to expand

Data sources: Bloomberg, Reuters, Next Level Grain Marketing, Mecardo. 

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