The ruble came off its lowest level since the beginning of the week after the central bank stopped all purchases of foreign currency by the end of the year, but remains damaged – and resources to prevent further collapse are dwindling.
On Friday, the central bank set the official exchange rate at around 108 to the US dollar. While that improved from Wednesday’s rate of 114 on the spot market, it still means one ruble is worth less than a penny.
The ruble has fallen 9% against the dollar since November 21, when the US sanctioned around 50 Russian banks, including Gazprombank, which has emerged as Russia’s main mover in currency markets. And from this year to date, the ruble has fallen by about 20% against the dollar.
While this may boost Russian exports by making them cheaper, it is likely to further fuel inflation by making imports more expensive. Although Western countries have largely cut off trade with Russia, products from China have replaced many imports, and the ruble has also fallen against the yuan.
Over the summer, Russian companies and banks have already suffered from a lack of yuanwhat is the most traded foreign currency in the country and the key saving grace for the economy.
Meanwhile, Russia’s sovereign wealth fund has been repeatedly used to prop up the ruble, leaving the Kremlin with less firepower to fight another currency collapse.
Just before the latest decline, liquid assets in the National Wealth Fund were $55 billion last month, according to Bloomberg. That’s down from $140 billion before Russia invaded Ukraine in 2022.
Russia can still earn foreign currency by selling its oil and gas, but its dwindling pool of sovereign wealth leaves Moscow at the mercy of energy prices, which are falling as global demand weakens.
The central bank may also raise benchmark rates further to combat hot inflation, while creating more demand for ruble-denominated assets. But rates are already at a staggering 21%, meaning further increases would further tighten the screws on the Russian economy.
On Friday, the central bank announced no immediate steps are required support the laundry, after President Vladimir Putin said on Thursday that the situation was under control.
Russia’s currency crisis comes after analysts predicted it would the economy will not be able to sustain Putin’s war against Ukraine last next year. For example, Russian factories cannot produce enough key weapons systems to replace losses on the battlefield, and old Soviet stocks are running low.
