On Sunday, Russia entered the third month of its invasion of Ukraine, with no sign of an end in sight. Despite severe pushback in the shape of the toughest economic sanctions ever imposed on a country, the ruble, the Russian currency, appears to be strengthening.
What’s become evident is that, despite an enormously broad package of sanctions on Russia’s government and oligarchs, as well as an exodus of foreign enterprises, the moves are mostly ineffectual if foreign nationals continue to consume Russian oil and natural gas, which supports the ruble.
On Feb. 24, the first day of the invasion, the ruble traded at 81 rubles per dollar. At the time of writing this article, the ruble is currently trading at 74.49 rubles per dollar. This figure comes after Russia’s central bank cut back on its hawkish stance by reducing its interest rate.
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What you should know
- The Russian Central Bank (RCB) slammed the brakes on its hawkish stance at the beginning of April with an unannounced interest rate cut.
- In a press release, Russia’s Central Bank announced lowering the key rate from 20% to 17%. The Bank of Russia said the ruble’s recovery from severe losses in the days following the February 24 invasion had decreased the risk of sharply higher inflation.
- Russian lawmakers recently passed a tax code modification that they claim will make it easier for international corporations to register bank accounts in Russia and pay for Russian gas and other goods in roubles.
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- Last month, Russian President, Vladimir Putin enacted a law requiring international gas buyers to pay in roubles or face having their supplies shut off. He claimed that this was necessary because if they paid in hard currency, Moscow would be unable to access the funds due to Western sanctions over Ukraine.
- In effect, foreign gas customers must open ruble and hard currency accounts with Gazprombank, which will collect their payments in foreign currencies and convert them to rubles through auctions on a Moscow exchange.
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- The UK imposed sanctions on Gazprombank last month, giving counterparties until April 23 to wind down their activities with the lender, which is one of Russia’s main payment conduits for oil and gas.
- However, Nairmetrics reported that the UK has extended the deadline for paying Russian Gazprombank and its subsidiaries for gas delivered to European Union countries until the end of May.
A pile of Western “analyses” on how Putin and Russia are “failing” has crowded the web as compromised outlets (VOA, RFE/RL, Reuters, Bloomberg, WaPo, NYT) sang in unison. But reality is different. Demand for rubles is up as not only natural gas but a growing list of key commodities are being paid for in rubles and yuans. Western establishments doom and gloom predictions were meant to depict sanctions as effective (at what?) and Biden and co as competent. Sanctions weren’t effective in 2014-2015 under Obama, and they are only further feeding preexisting inflation in the West.