JRL NEWSWATCH: “Russia will struggle to cope with a sinking rouble” – The Economist

“What does the currency’s collapse mean for Vladimir Putin’s ability to wage war?”

On Aug. 14, 2023, the value of the ruble fell below 1 cent in U.S. currency, more than 100 rubles per U.S. dollar.  That was the ruble’s worst exchange value against the U.S. dollar since the immediate aftermath of the early 2022 Russian invasion of Ukraine.

“… The [ruble] is one of the world’s worst performers this year …. In an emergency meeting, the Bank of Russia raised interest rates by 3.5 percentage points, to 12%. Although the rouble recovered a little on the announcement, it then slipped again and is still far cheaper than its level of around 60 to the dollar this time last year. … with consequences for … Putin’s ability to wage war. …”

Since currency trading in rubles remains limited, its pricing is impacted more by the relative flow of exports against imports.

Ordinarily, direct intervention in currency markets might have been one financial tool for Russian financial regulators.  However, past Russian investment in foreign currency reserves has ended up resulting in billions of dollars in Russian-owned foreign reserves simply being frozen by the West.

“[Meanwhile,] … the [Russian] government … could cut back on spending, including on its armed forces, to reduce imports. Alternatively, and in all likelihood, the civilian economy will take the pain. Rising inflation and higher interest rates will weaken the purchasing power of ordinary Russians, forcing them to buy fewer foreign goods. … [T]he fate of Russia’s economy will not be decided by the judgments of international financiers but by the depths of [] Putin’s aggression. … a far more unhappy situation in which to be trapped.

Click here for: “Russia will struggle to cope with a sinking rouble; What does the currency’s collapse mean for Vladimir Putin’s ability to wage war?” – The Economist