The Russian ruble hit 52.3 against the dollar on Wednesday, the highest level since May 2015.
These levels are far from the levels reached at 139 against the dollar in early March, when the United States and the European Union began imposing unprecedented sanctions on Moscow in response to its war with Ukraine.
The Kremlin cites the ruble’s astonishing appreciation in the coming months as “proof” that Western sanctions have no effect.
Russian President Vladimir Putin met last week during the annual St. Petersburg International Economic Forum said: “The idea was clear and that was to violently crush the Russian economy. They did not work, and of course it did not happen.”
At the end of February, after the initial collapse of the ruble and four days after the start of the Ukraine war on February 24, Russia more than doubled its key interest rate from 9.5% to 20%.
Since then, the currency has improved so much that the Russian central bank has cut interest rates three times, to 11% at the end of May.
The ruble has in fact become so strong that the Russian Central Bank is taking measures to try to weaken it, for fear that it will make the country’s exports less competitive.
Oil and gas
Russia is extracting record revenues from oil and gas, the reasons being high energy prices in addition to the capital controls that Russia has instituted since the beginning of the war.
Russia is the world’s largest gas exporter and second largest oil exporter, and its main client is the European Union, which buys billions of dollars of Russian energy every week while trying to punish Russia, which puts the European Union in an awkward position. .
He has now sent twice as much money to Russia from oil, gas and coal purchases as to Ukraine as aid, which helped replenish the Kremlin’s war fund.
And with Brent crude oil prices rising 60% from this time last year, although many Western countries have reduced their purchases of Russian oil, Moscow is still making record profits, so it brings in a large current account surplus.
Russia’s current account surplus in January-May this year was just over $ 110 billion, according to the Russian Central Bank, more than 3.5 times that of last year.
Strict capital management in Russia
Capital controls, or in other words the government’s restriction on foreign exchange leaving its country, played a major role, as did the fact that Russia could not import due to sanctions imposed by the West, which meant that it had less of its money spent on buying goods from abroad.
“The authorities have implemented very strict capital controls as soon as the sanctions come in, and the result is money flowing out of exports while relatively little capital outflows, and the net effect of it all is a stronger ruble,” says Nick Stadmiller, director of emerging markets strategy at Medley Global Advisors in New York. “.
Russia has now loosened its capital controls and lowered the interest rate in an attempt to weaken the ruble, as a stronger currency is actually hurting its financial account.
The word “Potemkin” stands for a country that offers a good exterior to impress, which makes people think that the country is doing better, but it is not really doing so well.
Because Russia is now cut off from the SWIFT international banking system and barred from international trade in dollars and euros, Max Hess, a fellow at the Foreign Policy Research Institute, told CNBC it was left to trade mainly with himself.
This means that while Russia has accumulated a large amount of foreign reserves that will boost its currency at home, it cannot use these reserves to meet its import needs due to Western sanctions.
“The ruble exchange rate is actually the ‘potemkin’ rate, because sending money abroad from Russia under sanctions, whether on Russian individuals or Russian banks, is very difficult, not to mention Russia’s capital controls,” he said. Hess added.
“The ruble on paper is a little stronger, but it’s due to the fact that you can not buy imports, which is the point of creating foreign exchange reserves, but you can not go buy things from abroad that you need for your economy, “Hess noted.
Therefore, some analysts believe that the strength of the ruble is not built on sound economic foundations for a healthy Russia.
“The strength of the ruble is related to an overall balance of payments surplus, driven more by external factors related to sanctions, commodity prices and policies than long-term macroeconomic trends and fundamentals,” said Themos Phyotakis, head of FX at Barclays.
On the possibility of the ruble’s continued strength, Viotakis said: “It is uncertain and depends on how the geopolitics and global political situation develops.”
“The Russian ruble is no longer an indicator of the health of the economy, the ruble has appreciated thanks to the Kremlin’s intervention,” said Max Hess, a fellow at the Foreign Policy Research Institute.
Analysts’ words appear to be in line with recent data from Russia, where the Russian Statistical Agency announced that the number of Russians living in poverty rose from 12 million to 21 million in the first quarter of 2022.