The Russian ruble is experiencing a steep decline, nearing the critical threshold of 100 per U.S. dollar—a level that once would have triggered alarm. Surprisingly, the Kremlin appears unbothered by this rapid depreciation, taking no immediate steps to stabilize the currency. According to insiders, the government sees this depreciation as beneficial, aligning with its plans for increased state spending in 2024. With reduced urgency to rescue the ruble, officials are reportedly comfortable with it sliding past 100 per dollar.
Compounding the ruble’s troubles is the evolving foreign exchange policy. The Moscow Exchange no longer trades in U.S. dollars or euros, reshaping how the ruble’s value is calculated. Western sanctions have already led to a severe shortage of foreign currency, a situation exacerbated by the U.S. deadline for businesses to exit the Moscow market by October 12. As a result, the ruble has dropped by nearly 9% since the sanctions took effect. Oleg Vyugin, a former Bank of Russia official, dismissed concerns about inflation, though rising prices remain a side effect of the weakening currency.
China’s yuan, which has become Russia’s preferred trade currency following Western sanctions, is also gaining strength against the ruble. The Russian currency has fallen by 11% against the yuan, hitting its lowest level since May at 13.26 per yuan. To counterbalance the decline, Russia recently revised capital controls, requiring exporters to convert only 25% of their foreign currency earnings into rubles, down from previous levels. This has led major exporters to reduce their currency sales by 30% in September, as they rely more on rubles for international trade.
Despite efforts to manage inflation through interest rate hikes, borrowing costs have soared, surpassing 20% for both domestic and foreign loans. This financial strain has complicated payment systems for exporters, with transactions often delayed by sanctions. In a recent meeting with the Security Council, President Vladimir Putin acknowledged the growing difficulties in cross-border payments. To reduce dependence on the dollar, Russia is working on a new payment system, possibly blockchain-based, which will be discussed further at the upcoming BRICS summit in Kazan. As Russia shifts away from Western financial systems, it aims to reshape international trade and reduce reliance on what it now views as "toxic" currencies like the dollar and euro. $BTC
