The Russian ruble, which Biden mocked as rubble, the Russian ruble is returning

(Bloomberg) – In the days after the war in Ukraine, the collapse of the ruble was a strong symbol of Russia’s new financial isolation.

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International sanctions against Vladimir Putin’s regime have lowered him to a record low of 121.5 rubles per dollar, evoking memories of the blows he suffered during Russia’s 1998 financial crisis.

Everything looked so horrible that US President Joe Biden said the ruble had turned into rubble.

Now, however, this is definitely not the case. The ruble rose to the point before Putin’s invasion of Ukraine, closing at 79.7 on Wednesday in Moscow.

It has become clear that despite an incredibly broad package of sanctions against the Russian government and its oligarchs, as well as the outcome of foreign business, the action is largely toothless as foreigners continue to devour Russian oil and natural gas – supporting the ruble’s reserves. Putin’s treasury.

Read: Japan will not ban the import of Russian coal, says Mainiti

Although Russia remains largely cut off from the global economy, Bloomberg Economics expects the country to receive nearly $ 321 billion this year from energy exports, more than a third more than in 2021.

The rapid recovery of the ruble gives Putin a great victory in Russia, where many people are focusing on the ups and downs of the exchange rate, even if his military threatens Ukraine, and around the world is growing outraged by the atrocities she is committing.

“For politicians, this is a good PR tool when they say that sanctions do not affect. And that will help limit the impact of inflation, ”said Guillaume Tresco, senior strategist for developing countries at Generali Insurance Asset Management.

In Russia’s post-Soviet history, the ruble’s exchange rate against the dollar may have been the economic indicator that Russians care most about. The exchange rate was broadcast by exchange kiosks that sprang up in every city and town, indicating a currency crash due to the explosion of hyperinflation in the early 1990s. The ruble fell again after Russia’s default in 1998.

As soon as this chaos subsided, the government cut off three zeros. Then, during the 2008 crisis, the authorities spent billions of dollars to slow the depreciation of the exchange rate, in part so as not to intimidate the population and not to raid national banks. Governor Elvira Nabiulina decided to take a risk that in 2014, when sanctions due to the annexation of Crimea and falling oil forced her to convert the currency into free circulation.

In response to this year’s sanctions, Russia has introduced measures to control capital, which also appear to support the ruble. This includes freezing the assets of non-resident investors and requiring Russian companies to convert 80% of the foreign currency they hold into rubles.

This leads some observers to doubt the importance of the ruble’s recovery to pre-invasion levels, which is also happening against the backdrop of the lowest trading volume in a decade. “This is not a free-floating currency, given all the measures imposed by the authorities,” Treska said. U.S. Treasury Secretary Janet Yellen said the same thing Wednesday, giving testimony in Congress, warning against not pulling deeper reports on sanctions because of the ruble’s rebound.

However, it is difficult to ignore the lifeline that other countries are throwing at Putin by buying oil and gas in his country. This gives Russia a current account surplus – economic jargon for exporting more than importing, which tends to raise the country’s currency – and undermines attempts to beat Russia with sanctions.

“The current account surplus should be another source of stability for the ruble,” said Brendan McKenna, a strategist at Wells Fargo Securities LLC. “If energy prices remain high and major importers of Russian energy and commodities continue to purchase, the current account should remain in surplus.” He says the ruble could reach 78 to the dollar, in part because of Putin’s counter-sanctions.

Russia has been able to stabilize local markets and even prevent a chaotic foreign default – at least for now. This means that if the coalition of governments opposed to Putin again wants to harm the ruble, they will most likely have to change course. Just this week, the U.S. Treasury Department banned payments on dollar debt from Russian accounts in U.S. banks to force Russia to release its domestic dollar reserves or default.

“As the Russian economy and financial sector adapt to a new balance of capital controls, price controls and economic authorship, it is not surprising that some domestic markets are stabilizing,” said Elina Rybakova and Benjamin Hilgenstack, economists at the Institute of International Finance. . “Sanctions have become a moving target and will eventually require adjustments to remain effective.”

They pointed to the possibility of tightening financial sanctions, possibly even disconnecting additional Russian institutions from SWIFT, the communication system that banks use to move money around the world.

Putin was forced to change his military strategy in Ukraine by withdrawing troops from Kiev after failing to conquer the capital. Research company Tellimer Ltd. warns against trusting market stocks amid talks on a potential end to the war in Ukraine.

“Don’t buy peace rallies,” said Paul Domian, a senior analyst at Tellimer. “Investors should be very careful about market stocks after news of peace talks. There will be many false dawns if the world courageously seeks to end this war. “

(Updates with a message that Japan will not ban the import of Russian coal below the fifth paragraph.)

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