Against all odds, the ruble, the Russian currency, has become the world’s best performing currency against the dollar so far this year, outperforming even the Brazilian real.
Not even the fastest and toughest economic sanctions in modern history imposed by the West in response to the invasion of Ukraine have been able to slow its rise.
Just two months after the ruble’s value fell sharply to less than a US cent, the currency made a surprising turnaround.
If on March 7 it touched record lows at 0.007 rubles per dollar, so far this year Russia’s currency appreciated by about 15% against the U.S. currency and trades around 0.016.
The key, experts say, has been the tight capital controls imposed by the Kremlin that left, when the war with Ukraine began, images of the population queuing at ATMs.
The ban on its citizens selling rubles to buy foreign currencies was described by U.S. Secretary of State Antony Blinken as currency manipulation.
These controls served to freeze a large part of Russia’s foreign currency reserves at a time when it needs these resources the most, both to compensate for the exodus of investments and capital and to finance the military invasion of Ukraine, longer than expected.
The case of Turkey or Argentina
What is unexpected about this recovery is that other countries, such as Turkey or Argentina, which were forced to impose similar measures, not only did not achieve the same results as Russia, but both the lira and the peso experienced disastrous consequences.
Both currencies hit record lows and are still struggling to recover.
In its emergency action immediately after learning of the international punishment, the Kremlin began to adopt measures unfamiliar to generations that did not live through the Soviet Union era.
“The Russian central bank was forced to dramatically raise interest rates and increase capital controls in response to Western sanctions,” Ben Laidler, global markets strategist at investment platform eToro, tells BBC Mundo.
“Interest rates more than doubled to 20%. Russian exporters were forced to convert 80% of their foreign earnings into rubles, and individuals were limited in terms of how much they could transfer abroad,” he adds.
One of the biggest and most impactful sanctions on Russia was the freezing of its foreign accounts.
Another of the measures to defend its currency was to demand that European Union countries that buy natural gas from it pay their bills in rubles instead of dollars or euros.
Strategic retaliation against Europe
European countries are heavily dependent on Russian gas and, despite plans to seek alternative energy sources, the European Union’s project to stop sourcing from Russia will take years to complete.
Germany, one of the largest customers of Russia’s state-owned gas company Gazprom, has already agreed to pay in rubles along with other major European buyers.
“Russia’s decision is a strategic retaliation against the EU, leveraging its power as the main supplier of natural gas to Europe. The Old Continent was receiving about 40% of its gas from Russia before the Ukrainian war,” explains Levon Kameryan, senior analyst at Scope Ratings.
Finally, higher commodity prices have also helped a lot.
More expensive oil means that Russia’s customers will now have to pay more dollars per barrel and will therefore need more rubles.
However, experts point out that all three factors-strict capital controls, higher interest rates and higher commodity prices-have only succeeded in slowing down what will be a “dismal” year for the Russian economy.
“The rapid rise of the ruble is a problem for exporters and some domestic producers, adding to the pressure of sanctions. It also means less revenue for the budget,” says Scott Johnson, an economist covering Russia for Bloomberg Economics.
But can the ruble’s rally be seen as a barometer for whether Western sanctions are working?
For Johnson, “from outside Russia, it’s tempting to see the ruble’s rally as a sign that sanctions are not having the desired effect. But that’s not quite right.”
“The appreciation has been driven largely by the mandatory conversion of export earnings and other capital controls, which limits the flow of cash from abroad,” he explains.
“The ruble paints an accurate picture of the balance of payments, but not of the underlying economy, where the outlook is more dismal,” he says.
Along the same lines thinks Laidler.
“The ruble’s rally may now be over. The stronger currency made Russian exports less competitive and tighter U.S. sanctions have increased the chances of a debt default.”