Table of Contents
What has happened?
- A raft of punishing sanctions sent Russia’s currency crashing in the weeks after the invasion of Ukraine.
- Barely a month later, the ruble has staged a dramatic recovery — Putting pressure on the Biden administration and its allies to deploy even tougher measures to undercut the Kremlin’s ability to finance the war.
- The Russian currency, which was trading at about84 rubles to the dollar on Feb. 23, the day before President Vladimir Putin launched the attack, had plunged roughly 70 percent by March 7.
- As of Wednesday, the ruble was nearly back to its prewar level.
- It prompts the question: Why isn’t the ruble feeling the pain? Are sanctions not working?
Reasons for the bounce back?
- Part of the reason behind this rebound is that Russian authorities are doing plenty to boost the ruble—”a lot of manipulation,” As Anthony Blinken, the US secretary of state, said on Sunday (Apr. 3).
- ”People are being prevented from unloading rubles… That’s artificially propping up the value.”
- But these capital controls are unsustainable for an indefinite period of time, Blinken added. “I think you’re going to see that change.”
High energy prices
- Additionally, the soaring prices of oil and gas have meant the value of Russia’s exports has risen.
- “At the same time, the impact of sanctions has caused domestic demand and imports to weaken sharply,” Jackson said.
- “So Russia’s trade and current account surpluses are probably increasing dramatically, creating demand for rubles.”
- As long as energy prices stay high—and as long as Russia keeps most of its oil and gas customers—the ruble will likely continue to be pushed upwards, Jackson said.
- Germany, France, and other big European purchasers of Russian gas are facing pressure from Russia to make payments in rubles, a move that would prop the currency up even more.
- But these factors may yet change if they refuse, and if Vladimir Putin does indeed follow through on his threat to cut them off, that sudden halt in payments will hit the ruble hard.
Other factors
- The Russian government helped stabilize the ruble by doing things like…
- Forcing Russian companies to exchange most of their foreign earnings for rubles.
- Restricting currency trading.
- Raising interest rates to 20% to fight inflation.
Does it mean sanctions are ineffective?
- Some current and former Treasury officials, foreign exchange traders and sanctions experts say the ruble’s rebound doesn’t necessarily mean the West’s economic weapons are losing their
- The currency’s comeback primarily reflects the extraordinary steps Russia’s central bank has taken to stop the ruble’s freefall, they say.
- It is not a sign of an improvement in the Russian economy or in Putin’s hand.
- The ruble’s value is also not the best barometer of how effective the sanctions are.
- “Irrespective of the moves in the ruble, the sanctions are hurting Russia’s economy hard,” Jackson said.
- “Inflation is already surging, the banks are under strain and financial conditions have tightened dramatically.”
- Even if the West doesn’t impose stricter sanctions, Russia’s GDP is expected to contract by as much as 15% over the next year as the country enters a steep recession,
- According to a projection from the Institute of International Finance, which is tracking the country’s economy.
Demand for more sanctions
- The currency’s rise from the grave is putting political pressure on the White House to enact more sanctions.
- Cut more Russian banks off from SWIFT. Seven banks (out of around 300 in the country) lost access in March. Two of the biggest did not.
- EU countries could stop buying Russian oil and gas and use secondary sanctions to prevent others from doing so.
Q) Which among following is NOT an oil producing field?
- Bombay High
- Digboi
- Ankaleshwar
- Jamnagar
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