Analyzing Russia’s Ruble

These are dark days for the native currency of the Russian Federation (RUB). With Vladimir Putin’s invasion of Ukraine and retaliatory sanctions employed by nations across the world, the ruble has lost over 40% of its value.

The US and its allies have banned Russian oil imports, revoked the country’s favored trade status and cut off signature Russian exports like vodka and caviar. Key western businesses like Coca-Cola, Mcdonalds and Starbucks have ceased operations in the country completely.

The Central Bank of Russia (CBR) responded to the near crippling sanctions by hiking its policy rate from 9.5% to 20% and supplied large quantities of liquidity to help banks manage withdrawals as Russian citizens scoured ATMS in order to exchange rubles for foreign currency.

Russia has also since, restricted its citizens access to foreign currency exchanges and limited transfers abroad.

Even if there is a cease-fire in the near term and return to peace in Eastern Europe, Russia’s economy will struggle to rebound because demand for Russian oil has dramatically weakened. Western nations will likely bolster attempts at continuing to become energy independent.

In the past few decades, the Ruble has largely tracked global commodity prices, specifically oil prices because of the heavy dependence of the Russian economy on its exports of natural gas and other natural resources.

The ruble collapsed in the second half of 2014, following Russia’s annexation of Crimea and the drastic decline in global oil prices. The Ruble lost about half its value versus the US dollar as the price of oil declined by nearly 50% by the end of 2014.

Generally, Russia’s GDP is only about 7% the size of the US economy and ranks about 11th worldwide. It’s economy trails smaller nations such as France and Italy.

The ruble has its origins in the fourteenth century and is today the second oldest currency in use, behind Britain’s Pound Sterling. It is made of 100 ‘kopeks’ and prior to the February 2022 invasion of eastern Ukraine, the Ruble hovered around the 17th most traded currency in the world.

The Central Bank of the Russian Federation has the exclusive authority to issue banknotes and coins in Russia. Notes are issued in denominations ranging from 5 to 5,000 rubles.

A weak Ruble will affect Russian citizens the most as inflation will soar and high prices will stretch budgets.

Investments in precious metals such as gold and silver has soured in Russia since February as fretful Russian’s search for a safe haven for their investments.

They are also hoping to take advantage of the Russian government’s recent move of scrapping a 20% value-added tax on purchases of precious metals.

Russia’s central bank was forced to discontinue its own purchases of Gold this week as demand for the asset from Russians citizens continues to soar.

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