The Russian ruble is in freefall, plummeting toward 100 per U.S. dollar, but the Kremlin appears unbothered by the currencyâs crash. Unlike in the past, when such a decline would trigger panic, Russian officials seem content to let the ruble weakenâa strategic move tied to state budget benefits amid rising government spending.
Why Is Russia Letting the Ruble Crash?
Two sources close to the Russian government reveal that the weaker ruble boosts budget revenues by increasing the ruble value of export earnings, essential as the Kremlin prepares for expanded military spending next year. The slide also aligns with Russiaâs shift away from traditional Western currencies, as the Moscow Exchange halts dollar and euro trading amid sanctions.
The Ripple Effect on Yuan and Exporters
The rubleâs depreciation isnât just against the dollarâitâs also down 11% against the Chinese yuan, Russiaâs preferred foreign currency since Western sanctions took effect. With fewer dollar transactions, Russia has turned to BRICS nations and the yuan for international settlements. Yet, the foreign currency shortage continues, compounded by payment bottlenecks as Russian exporters face growing difficulties in managing cross-border transactions.
Exporters are under pressure as the availability of yuan dwindles. Many companies report manual processes to manage payments, often waiting over a month for approval, only to face the risk of rejection. These liquidity challenges are squeezing cash flows and adding borrowing costs that now exceed 20%.
Higher Inflation and Interest Rates Loom
Russiaâs central bank has taken drastic action in the past to stabilize the ruble, hiking rates as high as 20%, but those measures now appear insufficient. With inflation soaring to more than twice the central bankâs 4% target, interest rates are expected to rise again soon, further burdening businesses struggling with rising costs and unpredictable payments.
Whatâs Putinâs Endgame?
President Vladimir Putin is taking bold steps to reduce Russiaâs reliance on the dollar, hinting at the development of a BRICS-based payment systemâpossibly blockchain-powered. During a recent Security Council meeting, Putin acknowledged cross-border payment issues as a serious challenge. The ruble is increasingly being used for trade, and the government recently reduced mandatory currency sales by exporters to ease pressure on firms.
However, this strategy comes with risks. The weakening ruble makes it harder for companies to manage payments, and Russiaâs bet on alternative currencies like the yuan exposes the economy to new vulnerabilities.
What Traders Should Watch
Russiaâs decision to let the ruble decline reflects short-term gains but long-term risks. For traders, the shift offers insight into potential movements in energy markets, especially with rising military spending tied to the rubleâs value. Monitoring Russiaâs central bank decisions and the yuanâs liquidity will be key indicators of further economic turbulence. As sanctions bite deeper, businesses and investors alike are left navigating a complex web of geopolitical risks and financial maneuvers.
Stay tunedâRussiaâs gamble with the ruble could have far-reaching consequences beyond its borders.
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