After a sharp plunge in value at the beginning of the war in Ukraine, the Russian ruble has recovered much of its value against other world currencies, a change made possible by aggressive capital controls put in place by the government in Moscow and a continual stream of payments for the country’s oil and gas exports.
The ruble’s resilience in the face of sanctions may make it easier, at least temporarily, for the regime of President Vladimir Putin to claim a measure of victory over international efforts to turn his government into a pariah. However, the practical effects of the ruble’s recovery may be limited for ordinary Russians, who remain largely cut off from global markets.
Also, as evidence of Russian troops’ brutal treatment of Ukrainian civilians accumulates, and Western governments take further steps to wean themselves off Russian energy, the Kremlin’s ability to protect its currency may weaken.
“I think the natural next step and a big set of questions is around energy revenues,” Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, told VOA.
She added, “As the images of atrocities on the ground continue, the pressure to do more is going to increase.”
One week before Russia launched its invasion of Ukraine, the ruble was worth about 1.3 cents in U.S. currency, meaning that it cost a little over 76 rubles to buy one dollar. By March 7, after governments around the world announced a range of painful sanctions on the Russian economy, the value of the ruble had fallen by nearly half. That day, a ruble was worth 0.7 cent, meaning that it cost almost 143 rubles to buy one dollar.
The expectation among many in the early days of the war was that the ruble’s loss of value was going to be a long-term problem for the Russian economy. Crucially, most of the Russian central bank’s foreign reserves — funds denominated in foreign currencies and held at banks outside Russia — were frozen. This left Moscow without the option of driving up the price of the ruble by buying it on the open market with dollars, euros and other foreign currencies.
In fact, the Russian government and its central bank took several steps that drove up the price of its currency. As of Tuesday, the ruble was worth approximately 1.2 cents, meaning that it now costs about 84 rubles to buy a dollar — a far cry from the 143 rubles required just a month previously.
“The Russian central bank more than doubled domestic interest rates to 20%. And they also put in place capital controls — that is, they limited the ability of Russian individuals to buy foreign exchange,” Gian Maria Milesi-Ferretti, former deputy director of the research department of the International Monetary Fund, told VOA.
Milesi-Ferretti, now a senior fellow at the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy, said another key factor in restoring the ruble’s value has been a new restriction on Russian exporters.
All Russian businesses still able to sell goods internationally are required to take foreign currency earned from those sales and transfer it to the Russian central bank in exchange for rubles.
This creates a steady demand for rubles, keeping the price high, and gives the Russian central bank a new source of foreign currency.
But the price of the Russian ruble in currency markets does not tell the full story of the impact sanctions have had on the Russian economy in general, and on the lives of ordinary Russians in particular.
“Russia’s economy, by virtue of the sanctions and the coping mechanisms the central bank has employed, has become much more an internal economy, a smaller economy,” Ziemba, of the Center for a New American Security, told VOA.
“It’s important to remember that Russians who used to be able to use their credit cards to purchase goods abroad in the U.S. and Europe, can’t,” she said.
This is in part because banking restrictions have made it impossible for most Russian banks to hold correspondent accounts in banks outside the country, which facilitate international payments. Also, inside Russia, major payment systems such as Visa and Mastercard have stopped processing cross-border transactions.
“So, there is difficulty in actually buying goods, both from a financial perspective, but also because a lot of companies have basically said — even if the trade is legal — they don’t want to do transactions with Russia,” Ziemba added. “The ability to actually use these assets is significantly limited.”
Energy wild card
One thing that remains uncertain is the extent to which Western governments, particularly in Europe, will be willing to stop purchasing oil and gas from Russia. Currently, Russia is running a large current account surplus, meaning it is exporting far more than it is importing.
In recent days, European leaders have proposed a ban on Russian coal imports and have floated the possibility of sanctions on Russian oil as well. Russian natural gas, which makes up a large percentage of the fuels used across Europe, does not appear to be on the chopping block.
Major action against Russian energy exports could significantly damage the Russian economy, but it is unclear that Western governments are prepared to take that step.
“We’re going to have to see how the war evolves, how expectations evolve,” Milesi-Ferretti said. “Everything is shrouded in uncertainty.”