Russia's ruble rebound raises questions of sanctions' impact
The Russian ruble has bounced back to almost its full value since before the West imposed economic sanctions on Russia over its invasion of Ukraine
30 March 2022, 20:19
6 min read
Share to FacebookShare to TwitterEmail this articleFILE - People walk past a currency exchange office screen displaying the exchange rates of U.S. Dollar and Euro to Russian Rubles in Moscow, on Feb. 28, 2022. (AP Photo/Pavel Golovkin, File)
WASHINGTON -- The ruble is no longer rubble.
The Russian ruble by Wednesday had bounced back from the fall it took after the U.S. and European allies moved to bury the Russian economy under thousands of new sanctions over its invasion of Ukraine. Russian President Vladimir Putin has resorted to extreme financial measures to blunt the West’s penalties and inflate his currency.
While the West has imposed unprecedented levels of sanctions against the Russian economy, Russia’s Central Bank has jacked up interest rates to 20% and the Kremlin has imposed strict capital controls on those wishing to exchange their rubles for dollars or euros.
It’s a monetary defense Putin may not be able to sustain as long-term sanctions weigh down the Russian economy. But the ruble’s recovery could be a sign that the sanctions in their current form are not working as powerfully as Ukraine's allies counted on when it comes to pressuring Putin to pull his troops from Ukraine. It also could be a sign that Russia's efforts to artificially prop up its currency are working by leveraging its oil and gas sector.
The ruble was trading at roughly 85 to the U.S. dollar, roughly where it was before Russia started its invasion a month ago. The ruble had fallen as low as roughly 150 to the dollar on March 7, when news emerged that the Biden administration would ban U.S. imports of Russian oil and gas.
Speaking to Norway's parliament on Wednesday, Ukraine's president urged Western allies to inflict still greater financial pain on Russia.
“The only means of urging Russia to look for peace are sanctions," Volodymyr Zelenskyy said in a video message from his besieged country. He added: "The stronger the sanctions packages are going to be, the faster we’ll bring back peace.”
Increasingly, European nations' purchases of Russian oil and natural gas are coming under scrutiny as a loophole and lifeline for the Russian economy.
The ruble has risen amid reports that the Kremlin has been more open to cease-fire talks with Ukraine. U.S. and Western officials have expressed skepticism about Russia’s announcement that it would dial back operations.
President Joe Biden promoted the success of the sanctions — some of the toughest ever imposed on a nation — while he was in Poland last week. “The ruble almost is immediately reduced to rubble,” Biden said.
Sanctions on Russian financial institutions and companies, on trade and on Putin's power brokers were crushing the country's economic growth and prompting hundreds of international companies to stop doing business there, Biden noted.
Russian efforts to counter those sanctions by propping up the ruble can only go so far.
Russia’s Central Bank cannot keep raising interest rates because doing so will eventually choke off credit to businesses and borrowers. At some point, individuals and businesses will develop ways to go around Russia’s capital controls by moving money in smaller amounts. As the penalties depress the Russian economy, economists say that will eventually weigh down the ruble. Without these efforts, Russia's currency would almost certainly be weaker.
But Russia’s oil and gas exports have continued to Europe as well as to China and India. Those exports have acted as an economic floor for the Russian economy, which is dominated by the energy sector. In the European Union, a dependence on Russian gas for electricity and heating has made it significantly more difficult to turn off the spigot, which the Biden administration did when it banned the relatively small amount of petroleum that the U.S. imports from Russia.
