How Russia Recovered the Rupee: Planet Hour: NPR


On February 24, 2022, a woman walks past the currency exchange office in central Moscow.

Alexander Nemenov / AFP via Getty Images


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Alexander Nemenov / AFP via Getty Images


On February 24, 2022, a woman walks past the currency exchange office in central Moscow.

Alexander Nemenov / AFP via Getty Images

Russia said last week that European countries buying its natural gas would have to pay in rubles rather than dollars or euros. A month ago it may have seemed like a good deal: the ruble fell 40 percent to 139 rubles to the dollar following Russia’s invasion of Ukraine.

However, from a low point on March 7, the Russian ruble has staged a dramatic recovery. At the time of writing, it was trading at $ 84, which is exactly where it was at the time of the invasion. This is not dead cat hopping. It was a sharp and lasting recovery that made the ruble the best currency in the world in March.

Still, all the restrictions imposed when the war began are still in place, and in some cases even stronger. How were the Russians able to renew their currency?

The hole in the wall gang

There are many components to this recovery. First, thanks to the enormous loopholes in the sanctions imposed by the United States alliance: natural gas. Sanctions are designed to limit Russia’s ability to receive foreign currency, especially the dollar and the euro. But many European countries continue to buy Russian gas because they rely on it and do not have enough alternative suppliers to meet the demand.

Add to that the rise in oil and natural gas prices and the downturn in Russia’s trade relations with other major economies, such as China and India, and the net result is that there is still a steady flow of foreign currency into Russia. This alleviated the concern that Russia would go bankrupt and helped put a base below the ruble.

Here is another loophole in significant sanctions: sovereign debt carved out. One of the biggest and most significant sanctions on Russia was the freezing of its foreign accounts. Russia holds about $ 640 billion worth of euros, dollars, yen and other foreign currencies in banks around the world. Half of that is in the United States and Europe. Sanctions prevented Russia from accessing the money … except when paying interest on its sovereign debt. The U.S. Treasury has opened a window to allow financial intermediaries to pay Russia. That window is scheduled to close this month, but it is a big help to Russia. Without it, Russia may have to raise dollars by selling the ruble, which will put downward pressure on the currency. If it could not raise those dollars, it would have come to default.

Financial Alchemy

These are definite, external factors driving the recovery of the ruble. Internal factors are somewhat less physical. On February 28, the Central Bank of Russia raised interest rates to 20 percent. Any Russian who wanted to sell their rubles and buy dollars or euros now has a great incentive to save that money. The fewer rubles that go on sale, the less downward pressure there is on the currency.

Next comes the government’s demand that 80 percent of any money earned by Russian businesses abroad be converted into rubles. This means that a Russian steelmaker who earns hundreds of millions of euros by selling steel to a company in France must convert 80 million euros into rubles, regardless of the exchange rate. A lot of Russian companies do a lot of business with foreign companies and earn a lot of euros and dollars and yen. The order to convert 80 percent of that revenue into rubles creates a significant demand for the Russian currency, thus helping to put a stop to it.

The Kremlin also issued an order banning Russian brokers from selling foreign-owned securities. Many foreign investors hold Russian company shares and government securities, and they may want to sell those securities. By banning those sales, the government is raising both the stock and bond markets and keeping the money in the country, all of which helps keep the ruble from falling.

Russian citizens are targeted by the government, which has banned the transfer of money abroad. The initial ban states that all foreign exchange loans and transactions must be stopped. This helped keep the country in foreign currency and encouraged Russians to sell the ruble for dollars or euros, which would put pressure on the currency. Those restrictions have recently been eased to suffocate Russians who continue to send money abroad, but the exchange rate of the hard currency will be just $ 10,000 for individuals by the end of this year.

Vladimir Putin’s dangerous ploy mentioned above in the newsletter may be the biggest factor in making the ruble juice: we say that Russian natural gas buyers will no longer have to pay their gas bills in rubles. Natural gas agreements are generally written to be paid in euros or dollars, and the countries that buy natural gas – the European Union, the United States, Canada, Australia, New Zealand, Japan, South Korea and Taiwan – do not have large reserves. Rubles in hand. If Putin succeeds in forcing these countries to pay in rubles, they will have to go out and buy them. Lots of them. Demand for the currency will increase and the ruble will rise naturally. It was the anticipation of that rise that helped lift the ruble’s market value.

A Botemkin coin

You could say that these moves by the Russian government are business as usual. After all, the Federal Reserve changes interest rates all the time. The U.S. Treasury has restrictions on remittances to certain countries. Why is it not possible to determine in which currency a country is paid? Aren’t governments responsible for protecting their currencies anyway? All reasonable points. However, the Russian government has more to do with protecting the currency: manipulating the market for rubles and producing otherwise non-existent demand.

Some observers claim that Russia has basically created the Potemkin coin. This is a reference to Gregory Botemkin, who was appointed Governor of Crimea in 1784 by Catherine the Great. Curious to show how much Catherine had succeeded in resettling Crimea with the Russian villagers, Botemkin is said to have created a nomadic village and populated it. When she inspected the area, he assembled, parted, and then reunited on her way. The governor of the Central Bank of Russia, Elvira Nabiullina, plays Botemkin with Putin’s Catherine, using various tools to make the ruble look like a currency, in fact very few people outside Russia want to buy it. Single ruble until they absolutely want it, and many within Russia do not really like rubles.

There are great dangers in all of this government intervention. The protectionist measures enacted by the CBR are a kind of bridge to the ruble. If Russia can come to some sort of resolution that involves the lifting of sanctions on Ukraine and the re-establishment of trade relations with Western countries, the ruble may retain its current value once the measures are withdrawn. However, if the measures are withdrawn without a resolution, the ruble will fall, the economy will collapse, inflation will rise and the Russian people will suffer greatly. And actions – some of them, at least – should eventually be withdrawn. Russian borrowers can not pay more than 20 percent interest rates for a long time, they can borrow at that price. Growth will stagnate – the Russian economy is already expected to shrink by more than eight percent this year – and industry will fall.

There could be huge risks associated with Putin’s natural gas maneuvers. As we said earlier, all natural gas agreements signed by buyers with Russia state that they will be paid in euros or dollars or other foreign currencies. Putin could not write “dollars” or “euros” in “rubles”, where those deals indicate how to pay. He will have to renegotiate the terms of those agreements. If he does, those countries will drastically reduce the amount of natural gas they buy from Russia.

Russia is the world’s largest producer and largest exporter of natural gas, but it is not the only resource there, and Russian gas buyers can move forward with new suppliers. The United States already sends goods to Europe. There is talk of supplies coming from the UK, Norway, Qatar and Azerbaijan. Israel is considering the idea of ​​a pipeline. Not all countries that buy large quantities of Russian gas can abandon it overnight, but if Russia insists on taking this step, it risks deceiving one of its largest revenue streams. In short, the problem with creating a homepage – as Russia did with its currency – is that not only can it collapse, it will collapse on you.

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