The ruble has hit its lowest since the start of the week after the central bank stopped all foreign currency purchases for the rest of the year, but it remains in ruins – and resources to prevent further collapse are shrinking.
On Friday, the central bank set the official rate at around 108 to the US dollar. Although an improvement from Wednesday’s rate of 114, this means that a ruble is worth less than a penny.
The ruble has fallen 9% against the dollar since November 21, when the US sanctioned around 50 Russian banks, including Gazprombank, which has emerged as a key linchpin for Russia in foreign exchange markets. And year-to-date, the ruble has fallen about 20% against the greenback.
While this may boost Russian exports by making them cheaper, it is likely to further stimulate inflation by making imports more expensive. Although Western nations have largely cut off trade with Russia, Chinese goods have replaced many imports, and the ruble has also depreciated against the yuan.
In the summer, Russian businesses and banks already a yuan shortagethis is most traded foreign currencies in the country and the critical salvation of the economy.
Meanwhile, Russia’s sovereign wealth fund has been repeatedly used to prop up the ruble, leaving the Kremlin with less firepower to deal with another currency’s collapse.
Before the latest crash, the liquid assets of the National Wealth Fund were $55 billion last month, According to Bloomberg. That’s less than $140 billion before Russia invades Ukraine in 2022.
Russia can still earn foreign currency by selling its oil and gas, but the shrinking sovereign wealth fund leaves Moscow dependent on energy prices, which are falling amid weakening global demand.
The central bank may raise benchmark rates further to combat hot inflation, creating more demand for ruble-denominated assets. But rates are already at a high of 21%, meaning additional hikes would further strain the Russian economy.
On Friday, the central bank said no emergency steps are required to support the ruble after President Vladimir Putin said on Thursday that the situation was under control.
The Russian currency crisis is coming as analysts have predicted the economy will not be able to sustain Putin’s war against Ukraine past next year For example, Russian factories cannot make enough key weapons systems to replace battlefield losses, and old Soviet stockpiles are being depleted.
