The Russian currency slips as the central bank gives up trying to save the ruble.
The ruble may not be in trouble for the moment, but the effects of its dramatic collapse in value may be just beginning.
The Russian currency finally stopped its slide on Monday, after Russia’s central bank announced it would stop trying to keep the currency in its “trade corridor” and allow it to float freely. The bank has already spent $ 29 billion trying to prop up the ruble in October, and that’s more than Russia can afford.
But while this move halted the ruble’s decline, long-term economic forecasts are still grim. The prices of oil and gas, Russia’s main exports, are collapsing. International sanctions, imposed against Russian interference in Ukraine, have crippled trade and investment. The country is now planning no economic growth in 2015.
In addition, the devaluation of the ruble could also have a strong psychological impact inside Russia, with national pride being strongly tied to the currency.
Ordinary Russians still remember the trauma of the 1990s, when hyperinflation gripped the country after the collapse of the Soviet Union. It took armfuls of cash to buy a loaf of bread; pensions and savings have been wiped out.
One of Putin’s most important achievements has been to stabilize the currency and allow the country’s economy to grow again. While he backed the central bank on Monday and called the ruble’s fall “speculation,” a sustained decline could damage his credibility.
The 1990s were not the first episode of hyperinflation suffered by the ruble. When the Soviet regime was first established after World War I, the country suffered terribly from the mass printing of its first paper money. A ruble in your pocket in 1918 was worth 50 billion rubles in 1924.
The ruble first became a recognizable coin in 1710 under Tsar Peter the Great, and the word “ruble” itself has a similar root to many other words for coins and money around the world.
There are a variety of explanations, but they are all related to the Russian verb “rubit”, which means to cut, chop or chop. The first “rubles” were cut pieces of a “grivna”, a standard 7 oz. a unit of silver that was common in much of eastern and central Europe during medieval times. The name of the modern Ukrainian currency, the “hryvnia”, is derived from it.
Likewise, coins cut from a Spanish silver dollar were called “pesos”, equivalent to 1 / 8th of a dollar. These were also used in colonial America, where they became known as “bits” – hence the term “two bits” for a quarter dollar.