The Future of the Russian Ruble: Can It Rebound, or Is It Stagnant?
The Russian Ruble's performance has been a topic of discussion for several years, with fluctuations driven by economic policies and international relations. As we look ahead, understanding the factors that influence the Ruble's value is crucial. Will the Ruble rebound, or is it destined to remain stagnant?
Manipulation of the Ruble Rate
The Ruble is not a freely convertible currency, which allows the central bank to manipulate the rate to some extent. This control is particularly useful during times of economic uncertainty. With expected higher inflation in Russia compared to the EUROZONE or the USA, we can anticipate a decline in the Ruble's value. This appreciation or depreciation is often proportional to the difference in inflation rates between the two regions.
Economic Impact of War
Recently, the Ruble has seen a resurgence, particularly after Russia requested that oil payments be made in Rubles. However, its future is closely tied to the duration of the ongoing conflict. If the war persists, the Ruble may remain strong as long as Europe does not fully cut off oil and gas imports from Russia. Conversely, if the war drags on for years, the Ruble's value will likely fluctuate based on the effectiveness of economic sanctions and the resilience of Russia's economy.
Recovery of the Russian Ruble
Many wonder whether the Russian Ruble will recover anytime soon. The answer largely depends on the global financial system and whether the US dollar remains the dominant currency. Alternatively, other currencies could gain prominence, but this is unlikely given the global economic structure.
Putin's Plan and the Ruble's Value
President Putin's strategy does not hinges on the recovery of the Ruble. Historically, the Ruble has been consistently undervalued between 25-60 percent according to the Big Mac Index, and this undervaluation serves multiple purposes:
Trade Balance: Undervaluation suppresses imports and boosts extractive exports, securing a healthy trade balance. Economic Stability: It supports oligarchs, whose cost structures are Ruble-based but revenue streams are tied to global commodity prices. This ensures their economic stability within Russia. Capital Flight Prevention: Instead of converting Rubles directly into foreign currencies, oligarchs must invest in Russian assets first, which are later revalued in Western currencies for offshoring. Budget Balance: Each percent point in the Ruble's appreciation reduces the need for budget reallocation, allowing for an accounting shift that boosts the state budget.A recent cartoon from the Russian government's propaganda channel symbolizes the strength of the Ruble under the context of sanctions and import substitution. The Ruble is depicted lifting weights labeled "Sanctions" and "Import Substitution," both of which reduce the volume of imports and consequently appreciate the currency.
As we move forward, the Ruble's fate remains intertwined with the geopolitical landscape and economic policies. Whether it rebounds or remains stagnant will depend on a combination of these factors, largely influenced by the global financial system and the duration of the conflict with the West.