On June 22, 2022, the Russian ruble reached 53.84 against the US dollar, gaining 35% so far in 2022. In response to Russia’s invasion of Ukraine in February 2022, the US and the European Union imposed multiple sanctions on Russia. However, despite the sanctions, the value of the Russian ruble against the US dollar increased to its highest level since 2015. The following factors are attributed to the rise in the Russian currency:
Increase in Oil and Gas Revenue
According to the International Energy Agency (IEA), Russia is the world’s largest exporter of gas and the second-largest exporter of crude oil. The ruble remained strong due to the increase in oil and gas export revenue owing to higher prices, and greater demand from Asia, which made up for the reduction in demand in Europe. According to Eurostat, the EU imported 36% of its oil requirements and 41% of its gas from Russia in 2020. Even though many EU countries are determined to reduce their dependence on Russia for their energy needs, the process could take years to come to fruition.
Record Current Account Surplus
The record current account surplus in foreign exchange is another factor aiding the growth of the ruble. While the West is moving to reduce its dependence on Russian energy sources, Russia is still exporting tonnes of oil and gas to the West at record-high prices, creating a significant current account surplus. According to the Russian central bank, the country’s current account surplus from January to May 2022 was over $110 billion, which is more than 3.5 times that in the previous year.
Strict Capital Control
Following the invasion of Ukraine, the Central Bank of Russia enacted stringent capital controls to encourage buying and restrict the selling of the ruble. Moreover, sanctions reduced Russia's ability to import as much, so it spends less on goods from other countries. This resulted in an inflow of money from exports and relatively few capital outflows.
Impact on the Russian Economy
The strength of the ruble can be linked to a surplus in the balance of payments, which is influenced by external variables such as sanctions, commodity prices, and policy decisions than by underlying macroeconomic fundamentals. The ruble became so strong that the Central Bank of Russia is trying to weaken the currency owing to fears that it will reduce the competitiveness of the country’s exports. Russia is trying to ease the capital controls it put in place after the US and Europe imposed economic sanctions on it. It drastically reduced rates, which are now back to the pre-conflict levels.
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