Ruble of Russia: Russia’s ruble is plummeting after Western nations agreed on Saturday to impose punishing financial penalties on the country in retribution for its invasion of Ukraine.
The ruble fell nearly 30% against the dollar on Monday, to less than one US cent, after the United States, the European Union, and the United Kingdom announced plans to block some Russian banks from using the SWIFT international payment system and limit Russia’s use of its massive foreign currency reserves. 11 Thousands of banks and other financial organizations throughout the world utilize the system to move billions of dollars.
The ruble rebounded after Russia’s central bank boosted its benchmark interest rate substantially on Monday to support the currency and avert a bank panic. However, it was trading at a new low of 105.27 per dollar, down from around 84 late Friday.
A weakening currency could lead to higher inflation, which could irritate Russians whose budgets will be squeezed by rising prices. It will also exacerbate tensions in Russia’s financial sector.
According to economists and analysts, a rapid depreciation of the ruble would result in a decline in the typical Russian’s standard of life. Russians continue to rely on a wide range of imported goods, and their prices are set to rise dramatically. Traveling overseas would become more expensive since their rubles would buy less foreign cash. Price shocks and supply-chain concerns could compel Russian firms to close down owing to decreasing demand in the coming weeks, causing even more economic turbulence.
“It’s going to have a huge impact on their economy,” David Feldman, an economics professor at William & Mary in Virginia, predicted. “Imported goods will see a significant increase in local currency costs. Subsidies will be the only way to halt it.”
A fast declining currency could hurt Russian businesses that need to borrow money.
“The [ruble] has plummeted, and most Russian bonds, whether directly sanctioned or not, have seen values plummet to levels signaling serious danger of default,” TD Securities analysts wrote in a research note.
Americans barred from transactions ruble of Russia
The US Department of Treasury restricted Americans from conducting business with Russia’s central bank, ministry of finance, and sovereign wealth fund on Monday, in yet another step to isolate Russia’s financial system.
The Treasury Department declared that “this action effectively immobilizes any assets of the Central Bank of the Russian Federation owned in the United States or by U.S. persons, wherever situated.”
Oxford Economics’ Tatiana Orlova dubbed the partial denial of SWIFT access to some Russian banks and the freezing of the central bank’s assets “crushing policies,” stating in a study that the crisis in Ukraine is “creating panic among Russian families and companies.”
The Ukraine conflict has wreaked havoc on the world’s financial markets. The Molex, Russia’s largest stock exchange, was closed on Monday. According to Nicholas Cawley, a strategist at DailyFX, this appeared to be an attempt to prevent nervous investors from selling their stocks.
U.S. markets were likely to open lower on Monday after soaring on Friday on news that Russian and Ukrainian leaders might meet this week. On Monday, delegates from the two countries met for the first time since Russia launched its invasion five days earlier.
Russia’s gross domestic product is expected to drop by almost 5% as a result of the sanctions, according to Capital Economics.
People fearful of sanctions wreaking havoc on the economy have been going to banks and ATMs for days, with social media reports of huge lineups and machines running out of cash. Moscow’s public transportation agency cautioned city residents over the weekend that using Apple Pay, Google Pay, or Samsung Pay to pay fares would be problematic since VTB, one of the Russian banks facing sanctions, handles card payments in Moscow’s metro, buses, and trams.
The Russian government will have to intervene to rescue failing industries, banks, and economic sectors, but without access to hard currencies such as the US dollar and euro, they may be forced to print additional rubles. It’s a risky approach that could lead to hyperinflation.
To stop the ruble’s decline, Russia’s central bank raised the benchmark interest rate to 20% from 8.5 percent on Monday. That came after the West decided to freeze Russia’s hard currency reserves on Sunday, an unprecedented measure that could jeopardize the country’s financial stability.
“Are sovereign bondholders going to get paid back now that it’s unclear whether Russia can even get their hands on their vast stock of [foreign exchange] reserves (whatever the denomination)?” In a report to clients, Bleakley Advisory Group’s chief investment officer, Peter Boockvar, said. “If you have a dollar-denominated Russian bond, good luck being paid back with the ruble down 19 percent today to a new record low against the dollar.”
Following the disintegration of the Soviet Union in the early 1990s, the ruble lost most of its value, prompting the government to remove three zeros from ruble notes in 1997. Then came a further decline in 1998, when many depositors lost money, and still another drop in 2014 when oil prices fell and sanctions were implemented after Russia annexed Ukraine’s Crimea peninsula.
It was unclear how much of Russia’s estimated $640 billion in hard cash, some of which is held outside the country, would be halted as a result of the move. According to European officials, at least half of it will be affected. The ability of financial authorities to maintain the ruble by purchasing rubles with reserves was severely harmed as a result of this.
Ruble of Russia