How Russia rescued the ruble

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from NPR,

A month ago, … The ruble was down 40%, at 139 rubles to the dollar, in the wake of Russia’s invasion of Ukraine.

Since that low point on March 7, however, the Russian ruble has staged a dramatic recovery. At the time of this writing, it was trading at 84 to the dollar, which is right back where it was at the time of the invasion. And this is no dead cat bounce. It’s a sharp and sustained recovery that made the ruble the world’s top-performing currency in March.

So how have the Russians managed to revive their currency? This recovery has several components.

Those are the tangible external factors driving the ruble’s recovery.

The first is thanks to the enormous hole in the sanctions that were imposed by the coalition of countries allied with the U.S.: natural gas. … several European countries continue to buy Russian gas because they have become so dependent on it and because there are not enough alternative suppliers to meet demand.

Add to that the increase in oil and natural gas prices, as well as the resilience of Russia’s trading relations with other big economies such as China and India, and the net result is that there is still a steady flow of foreign currency into Russia.

Another hole in the sanctions is worth mentioning here: the sovereign debt carve-out. One of the biggest and most impactful sanctions on Russia was the freezing of its foreign accounts. Russia holds about $640 billion worth of euros, dollars, yen and other foreign currencies in banks around the world. About half that amount is located in the U.S. and Europe. The sanctions blocked Russia’s access to that money, except when it comes to making the interest payments on its sovereign debt. The U.S. Treasury left a window open to allow financial intermediaries to process payments for Russia. Without it, Russia might have needed to raise dollars by selling rubles, which would have put downward pressure on the currency. And had it not been able to raise those dollars, it would have defaulted.

The internal factors are somewhat less corporeal.

On Feb. 28, the Central Bank of Russia increased interest rates to 20%. Any Russian who might have been tempted to sell their rubles and buy dollars or euros now has a big incentive to save that money instead. The fewer rubles that go up for sale, the less downward pressure there is on the currency.

Next comes a government requirement on Russian businesses that 80% of any money that those businesses make overseas has to be swapped into rubles. This means that a Russian steelmaker that makes 100 million euros selling steel to a company in France has to turn around and change 80 million of those euros into rubles, regardless of the exchange rate.

The Kremlin also issued an edict banning Russian brokers from selling securities owned by foreigners. Many foreign investors own Russian corporate shares and government bonds, and they might understandably want to sell those securities. By banning those sales, the government is shoring up both the stock and bond markets and keeping money inside the country, all of which helps keep the ruble from falling.

Russian citizens themselves have been targeted by the government, which has restricted them from transferring money abroad. The initial ban said all foreign exchange loans and transfers were to be suspended. This served to keep foreign currency in the country and discourage Russians from selling rubles for dollars or euros, which would put pressure on the currency.

Perhaps the biggest factor juicing the ruble is a risky ploy by President Vladimir Putin that we mentioned at the top of this story: telling certain buyers of Russian natural gas that they must henceforth pay their gas bills in rubles. Natural gas contracts are usually written requiring payment in euros or dollars, and the countries that buy natural gas — EU nations, the U.S., Canada, Australia, New Zealand, Japan and South Korea — tend not to have big reserves of rubles on hand. So if Putin is successful in forcing these countries to pay in rubles, they’re going to have to go out and buy them. A lot of them. Demand for the currency will surge

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