Why the Russian ruble is the strongest currency so far this year
The Russian ruble rebounded from crippling economic sanctions imposed on Moscow following the invasion of Ukraine and is now at its strongest in more than seven years, earning it the distinction of being the most performer in the world so far this year.
The ruble was trading at 54.47 to the US dollar on Thursday, a far cry from the 139 to the dollar the currency fell to in March, when the US and European Union sanctioned the Kremlin for its invasion of Israel. Ukraine.
Since the beginning of the year, the ruble has climbed 40% against the dollar, outperforming all other currencies in the world.
Russian President Vladimir Putin has touted the ruble’s strong recovery as proof that his economy has successfully withstood the onslaught of Western sanctions.
“The idea was clear: violently crush the Russian economy,” Putin said at an economic forum in St. Petersburg last week. ” They did not succeed. Obviously, that didn’t happen.
Under normal circumstances, a country hit by economic sanctions would see capital flight, leading to a decline in the value of its currency.
Analysts attribute the ruble’s strong performance to the Kremlin’s aggressive moves to prevent cash from leaving the country as well as soaring oil and natural gas prices.
Russia is the second largest oil exporter in the world. It is also the world’s largest exporter of natural gas.
Oil prices began to rise steadily in late 2021 when it became apparent that Putin was massing his soldiers near the Ukrainian border.
On Nov. 30, U.S. crude was trading at around $66 a barrel. At the end of February, as the incursion began, US crude was priced above $92 a barrel.
Last week, U.S. crude surged to over $120 a barrel before retreating in recent days on fears of a recession.
The price of natural gas followed a similar trajectory.
The export of fossil fuels has allowed the Russian government to reap a windfall of $20 billion a month since the start of the war in Ukraine.
An analysis by Bloomberg Economy earlier this year found that the Kremlin could amass a $321 billion surplus this year from energy exports alone.
While the United States and the United Kingdom have banned Russian energy imports, other countries have continued to buy from Moscow, including China, India and South Korea.
When Putin demanded that countries pay for Russian oil and natural gas in rubles earlier this year, many complied.
The EU, which is largely dependent on Russian energy imports, has pledged to wean itself off oil and natural gas in favor of renewables.
“Commodity prices are currently very high, and even though there is a drop in the volume of Russian exports due to embargoes and sanctions, the increase in commodity prices more than compensates for these declines,” Tatiana said. Orlova, an emerging markets economist at Oxford. Economy, says CBS MoneyWatch.
Russia’s central bank has also bolstered the ruble by prohibiting foreign holders of Russian stocks and bonds from withdrawing dividend payments from the country.
Russian exporters are also required to convert half of their excess income into rubles.
Despite the mass exodus of Western companies from Russia, the Kremlin has made it difficult for them to sell their local investments at fair market prices.
“Although we are seeing these announcements of Western companies leaving Russia, they often just have to hand over their shares to their local partners,” Orlova said.
“That doesn’t mean they get a fair price for their stakes, so they’re not moving large sums of money out of the country.”