Russian ruble's recent rally, performance baffle US economists


After dropping below a U.S. penny in early February, the Russian ruble has since become the best-performing currency in the world. Economists are puzzled by the sudden rise of the ruble, despite the country's sanctions.

On February 28, the Russian ruble hit a record low. Due to the country's financial sanctions, which were imposed by countries against the Ukraine conflict, many individuals started to withdraw large amounts of cash. The United States and other Western countries also restricted the country's international reserves.

On April 2, 2022, Bitcoin.com News reported that Russia's central bank had started to cut its interest rates and increase the ruble's value by pegging it to gold. At that time, the price of gold was around 5,000 rubles. Russia also made it so that other countries had to pay for gas using the ruble. Despite the country's sanctions, many international buyers continue to use the ruble as their primary currency.

What economists say

In April, the Russian ruble started to recover from its earlier losses. In recent weeks, various media outlets have reported that the Russian currency is the best-performing fiat currency in the world. According to Jeffrey Frankel, a professor at Harvard Kennedy School, the ruble's rise is an unusual situation. It has also recorded record highs against the U.S. dollar and the eurozone.

According to Tatiana Orlova, an economist at Oxford Economics, the ruble's resilience has been one of the factors that led to the significant increase in commodity prices.

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She noted that despite the sanctions, Russia's exports have dropped due to the country's actions in Ukraine and other countries, but the increase in these prices has compensated for these losses. She also stated that there has been a significant difference between the imports and exports of Russia.

Orlova also discussed the various measures Russia's central bank has taken to control the country's financial transactions. She noted that the sanctions negatively affected the country's foreign exchange reserves. She said that the restrictions on the country's stock and bonds markets had previously been a significant source of outflows from Russia.

CBR takes control

One of the most effective measures that the Russian central bank has taken to control the flow of foreign capital into Russia is the requirement that exporters convert half of their sales into rubles. This has been a huge factor that has prevented foreign companies from selling their assets in the country.

Despite the increasing number of companies from Western countries announcing that they plan to leave Russia, Orlova noted that most of these companies are transferring their assets to their local partners.

According to Elina Ribakova, an economist at the IIF, the ruble's stability has been attributed to the country's high current account surplus. She noted that this surplus has also been a factor supporting the currency's rise.

"While this is not a free market-determined exchange rate, ruble stability is at the same time 'real,' in the sense that it's driven by Russia's all-time high current account inflows," Ribakova said.

Despite the various steps that the central bank has taken to control the flow of foreign capital into Russia, Ribakova noted that the country's central bank is in a difficult situation because of the strong rise of the ruble. She said that the country could experience a significant outflow of capital if it continues to loosen its capital controls.