The Russian Rubble Rebound

By Tavish McNulty | May 5, 2022

As Ukrainian cities are buried in rubble from Russian barrages, the Russian ruble has returned to pre-war levels following damaging sanctions. For those unaware, the Russian ruble (or rouble) is the monetary unit of Russia. Since the start of the war on February 24th, 2022, the U.S., Canada, United Kingdom, and numerous European countries have instituted sanctions on Russia, Russian-related businesses, and notable Russian citizens. The intent of these sanctions were to weaken Russia’s economy, devalue the ruble, and limit Russia’s foreign asset capabilities.

Within a week the ruble went from trading for about 83 rubles per U.S. dollar to 108 rubles per U.S. dollar, which entails a weaker currency value. The sanctions seemed to be doing their job with the confidence of Russian citizens in their economy dwindling, the prices of Russian bonds falling, and the shutdown of the Moscow Exchange on February 28th. The value of the ruble even reached a low of 132 rubles per U.S. dollar only two weeks after the sanctions.

However, going into April as Russia has continued its advance into Ukraine, the ruble has reached pre-war levels trading at about 80 rubles per U.S. dollar on average over the month. So what happened? Are we not doing enough? A combination of Putin’s policies and international markets have kept Russia afloat from the onslaught of sanctions. Putin has made aggressive moves to keep the currency in circulation. Interest rates in Russia have increased from 10% to 20% following the sanctions. This move entices people to keep their money in the banks preserving these financial institutions.

Russia has also restricted trade in the foreign exchange market banning cash purchases of dollars and euros, and putting commissions on online foreign currency purchases. Many claim that these methods, despite strengthening the ruble on paper, are merely an artificial fabrication. There is truth to this as the economy is experiencing one of its worst recessions since the 1990s. However, the backbone of Russian revenues remains strong on the international market, which could be just what the Russians need to keep themselves in the war.

Last year nearly half of the Russian government’s budget was funded by oil and natural gas exports. Despite recent embargoes, these revenues still remain a vital part of Russia’s economy. Currently, the United States, Britain, Canada, and Australia have all banned Russian oil imports. Still, many strong countries continue to buy Russian oil and natural gas giving the Russians a crucial stream of income as they continue their advance in Ukraine. Putin has also required that Russian oil and natural gas exporters swap 80% of their foreign currency revenues for rubles. The combination of these two factors has helped the ruble to rally and keep the Russian economy alive. The Center for Research on Energy and Clean Air recently estimated that Russia has earned $66.5 billion since the first troops invaded Ukraine. Russia supplies gas to 23 European countries through pipelines and four European gas buyers recently gave into Putin’s demand to purchase gas in rubles. It can’t go without saying that many of these countries that continue to buy Russian oil and natural gas could face their own economic consequences if they ban these goods.

In order to support Ukraine, the world is going to have to face this as a united front and boycott Russian energy sources. Countries must work together to weaken Russia’s stream of income that is funding the war while helping countries that rely heavily on Russian fossil fuels to diversify their energy portfolio.

Edited by Joseph Barbieri