Russia’s Surprising Economic Headache: A Strong Ruble
The Russian currency has risen 42% against the dollar this year, weakening the value of the country’s oil-and-gas revenues
By Caitlin McCabe and Kate Vtorygina
Updated June 29, 2022 5:53 pm ET
After its first default on international debt in a century amid a grinding war with Ukraine, one might expect Russia’s currency to be suffering. But Russia has the opposite problem.
The Russian ruble has soared to a roughly seven-year high against the U.S. dollar—an astounding turnaround for a currency that earlier this year was in free fall after Russia invaded Ukraine. The ruble on Wednesday had risen 42% against the dollar this year, making it the best performer against the greenback, according to a Dow Jones Market Data analysis of 56 currencies.
That strength has come with a cost. A strong ruble threatens to hit Russia’s budget by reducing the value of oil-and-gas tax revenues that are denominated in dollars.
The ruble “really is too strong for Russia right now,” said Liam Peach, an emerging markets economist at Capital Economics, who said that with the ruble nearly twice as strong as it was three months ago, Russia is now receiving roughly half as much in oil-and-gas tax revenue in ruble terms. “The damage that this is likely to continue doing to the public finances has probably made policy makers quite concerned.”
On Wednesday, Russian Finance Minister Anton Siluanov unveiled a new proposal to counter the ruble’s gains: buying the currency of so-called friendly countries to help influence the exchange rate of the ruble and against the dollar and euro.
With Western sanctions against Russia blocking the central bank’s ability to intervene traditionally in the foreign-exchange market, Mr. Siluanov’s proposal marks the latest attempt to stabilize the ruble as the country grapples with the effects from its war in Ukraine.
“The issue is that Russia can’t simply sell rubles and purchase dollars—there are sanctions on the holdings and transactions from the Russian central bank,” Mr. Peach said. “I think that’s why they’re now trying to do this with friendly currencies.”
Four months ago, Russia was facing a far different problem: Its currency was too weak. In late February, the ruble cratered in the immediate aftermath of the country’s invasion of Ukraine. Russian officials were forced to scramble to implement capital controls to prop the currency up.
Throughout February and March, Moscow took drastic measures. Russia’s central bank limited the amount of dollars that Russians could withdraw from foreign-currency bank accounts. Moscow initially required companies to change 80% of their foreign-currency revenues into rubles. And the country doubled its key interest rate to 20%, essentially rewarding people for holding rubles.
The capital controls worked and pushed the ruble higher. Meanwhile, Russia’s commodity exports, which were boosted by high prices, gave the currency further upward momentum. At its worst during the war, the ruble in early March reached a record intraday low of about 158 rubles to the dollar, according to data from Tullett Prebon. On Wednesday, it finished at nearly 53 rubles to the dollar.
But Russia in recent months has been taking steps to weaken the ruble, including loosening capital controls and cutting the country’s key interest rate—efforts that have yet to pay off.
Now, Russia is considering deploying excess oil-and-gas revenues to purchase “friendly” country currencies to try to influence the exchange rate of the ruble against the dollar and euro. Speaking during a meeting of the Russian Union of Industrialists and Entrepreneurs, a Russian lobby group, Mr. Siluanov said the Ministry of Finance would discuss the idea with the government’s economic bloc.
Mr. Siluanov didn’t specify which currencies Russia could buy. Earlier in the day, the ruble pared its gains and then turned lower in offshore trading Wednesday after Mr. Siluanov’s comments. The Russian currency recovered to finish 2.4% higher for the day.
I really thought Ukraine was "bout it bout it'. Like I thought they had Russia by the balls and not the other way around.
