The Russian currency – the ruble – has lost significant value since the beginning of 2023, reaching levels not seen since Russia’s invasion of Ukraine.
Although Yevgeny Prigozhin’s antics played a part in the short-term, the real problem is structural.
The Russian currency has been tumbling all week. The rate against the U.S. dollar dropped as low as 94 rubles on Thursday, while against the euro it fell to 102. This is the weakest the ruble has been since March 2022 when it collapsed in the wake of Russia’s invasion of Ukraine. The ruble has lost about a third of its value since the start of the year and is — so far — this year’s worst performing emerging market currency, reported The Bell.
Everything is stacked against the ruble at the moment: low exports, increased imports, the ongoing transfer of funds out of Russia to accounts abroad, extremely low liquidity levels and the absence of non-residents in the currency markets.
Russia historically, at least since the devaluation in the late ’90s, has had responsible fiscal and monetary policy. The war is stressing this history.
The old belief that a falling exchange rate boosts revenues is greatly undermined when the government is financing expenditure by borrowing on the markets. The Finance Ministry last year issued 3.3 trillion rubles’ worth of bonds (almost $50 billion) and plans to do the same this year. The ruble’s collapse leads to faster inflation and, as a result, higher interest rates — making borrowing more expensive.
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