The Russian Ruble's Struggle: Losing Ground Against the US Dollar

There is no "currency war" in the true sense. The Russian economy is only the size of the state of Texas, and the Russian National Bank predicts a GDP fall of 6% in 2023, due to sanctions, falling energy prices, and labor shortages. This article aims to explore the real situation of the Russian ruble and its comparison with the US dollar, clarifying that there is no significant battle for currency dominance here.

Myth of the Currency War

Claiming a currency war between the Russian ruble and the US dollar is a misleading notion. Both currencies serve different functions in their respective economies, and there is no direct competition for value. The ruble is often humorously referred to as a 'third-rate currency' outside of Russia, as its value is largely dictated by the actions and declarations of the Russian government. This is true even during times when the economy was under the control of the Soviet Union.

The Historical Context

Consider the example of visiting any country with both 1000 USD and 100000 RUB in cash. When traveling abroad, the performance of each currency becomes apparent. The US dollar retains its value and purchasing power globally, while the ruble, despite occasional fluctuations, does not carry the same weight outside Russia.

To understand the true value of the ruble, one can look back to the mid-1980s. At that time, I had approximately 1.5 million rubles in cash in Moscow. The Russian government issued a decree that all 50 and 100 ruble notes would be replaced with new rubles in three days, making them worthless afterwards. This sudden change was accompanied by a five-hundred-ruble-exchange limit at banks; anything more was presumed to be part of illegal black markets.

This decree highlighted the true nature of the ruble as a currency without intrinsic value beyond what the Russian government declares. In essence, it was a worthless paper currency that held significance only within the confines of Russia. Outside this region, its value is next to zero.

Investment and Currency Value

Another way to gauge the value of the ruble is through investment. On February 24, 2022, if you had $100 in Russian rubles, today you would have approximately 196 rubles. However, this should not be misconstrued as a decline in the value of the ruble. Instead, it is the inverse: the US dollar has gained considerable value.

Why the US Dollar is Domineering

The US dollar continues to dominate the global economy due to its stability, widespread acceptance, and significant role in international trade and finance. Its strength is underpinned by the economy's size, the world's largest and most diverse consumer market, coupled with a reputation for economic stability.

Moreover, international interest in the ruble is limited. Countries and economies outside Russia are not willing to adopt it due to its erratic value and the associated risks. This has made the dollar the go-to currency for global transactions, reducing the necessity for the ruble to compete on the international stage.

Conclusion

The currency that thrives is one that underpins a stable and robust economy. The US dollar, with its strong backing from the world's largest economy, continues to outshine the Russian ruble. When the economy falters, as with Russia, the currency's value often follows suit. Rather than viewing a currency war between the two, it is crucial to recognize the disparity in economic performance and the reasons behind the varying strengths of these currencies.

In conclusion, while the Russian ruble has faced significant challenges due to sanctions and economic instability, the US dollar remains the undisputed leader in the global monetary system.