As countries around the world, including the US and Europe’s largest economies, feel the heat of runaway price inflation, some have claimed that Russia has largely relieved the economic pain despite Western sanctions.

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From economic experts to the general public on social media, many are pointing to the recent rally in the Russian currency.

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Amid skyrocketing commodity prices since Russia’s invasion of Ukraine, these comments often equate this apparent success with the economic pain felt in the global economy.

Claim

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Dozens of high-profile accounts have commented on the recent rise of the Russian ruble, which Bloomberg and other finance-focused publications have hailed as the best-performing currency in the world this year.

“Goldman Sachs forecasts a 30% chance of the US economy going into recession in 2023, up from 15% due to record-high inflation and a weak macroeconomic backdrop due to the ‘Biden-imposed’ Ukraine conflict. Meanwhile.. .Russian ruble is proving to be the strongest currency in 2022, having jumped 40% versus the USD,” (sic.) a Twitter user wroteCollecting over 800 interactions.

“Western sanctions against Russia hurt ordinary people in the US and EU at gas pumps and when shopping for essentials, while the Russian ruble just hit a 7-year high against the US dollar and Russia on high energy.” Made record profits by selling oil and gas. Prices,” wrote Kim Dotcom added “#Stupidity” in a tweet with over 1,900 likes.

“Hey someone notice the ruble lately. F’n Biden is 100% wrong about everything,” said one reddit Post On the WallStreetSilver subreddit, with 288 upvotes at the time of writing.

But others have questioned both the official exchange rate and the supposedly insignificant effect of Western sanctions on the economy.

“The exchange rate from real ruble to US dollar is 160 RUB/USD. The exchange rate used by Russian consulates around the world for fees etc. As you know, one cannot even buy dollars in #Russia. The ‘market’ rate is fake, but probably used to rip off European oil/gas suckers,” wrote Igor Sushko, director of the Wind of Change non-profit on Twitter.

So is Russia really the big winner in what President Vladimir Putin branded as an “economic blitzkrieg” by the West in his recent address? newsweek Spoke to bankers and economists to find out what’s really happening.

fact

Russia’s ruble jumped 6 percent against the euro on June 21 to hit a seven-year high, making it the world’s largest ruble. strongest currency This time.

After its initial collapse in the days after Russia launched its “special military operation” in Ukraine on 24 February, briefly falling to 138.5 rubles per US dollar, the Russian currency posted significant gains in the ensuing weeks and remained at ~80 per cent. Continued appreciation of USD levels were seen on the eve of the war and thereafter.

But as talking experts newsweek As points out, not all factors driving this recovery are linked to free market forces, nor does a currency’s strength translate into economic success.

“The ruble defies many Western predictions that it will become a rubble since sanctions are put in place,” said Charlie Robertson, global chief economist at Renaissance Capital Bank. newsweek,

In part, Robertson attributes President Putin’s “Fortress Russia” economic policy, which unites his hands to “waging war and not stopping by economic vulnerability”—in contrast, the Economist notes, the Suez Crisis of 1956. During Britain’s invasion of Egypt, when economic pressure from America forced the British to retreat.

“The currency has actually strengthened significantly since the invasion of Russia, but it is not the mark of national strength that a strong currency usually represents,” Robertson said. “The ruble is very strong and there have been deep interest rate cuts after initial massive hikes to protect shocking local markets.”

Additionally, the official exchange rate may not accurately reflect the currency’s true value, according to another economist, who was speaking out of record because the international bank they work for in Russia is currently in media silence. is in mode.

“The official exchange rate is fully valid for exporters and importers and their cross-border operations,” he said.

“For households, the real value of the ruble against other currencies is lower than official rates because of restrictions on cash withdrawals from FX by local banks. [foreign exchange]And the high transaction cost of using the ruble abroad.”

As several analysts have pointed out in recent months, A strong posture is not necessarily a blessing that Russian officials portray it.

“I will not judge the state of the economy by the strength of the currency,” said the economist, speaking out of record. “The ruble dynamic reflects nothing more than the state of Russia’s external trade and financial flows, and the only positive from this is that inflation is now slightly lower than it otherwise would have been.”

In fact, the annual inflation rate in Russia stood at 17.1 percent in May of 2022, down slightly from the previous month’s 17.8 percent — the highest since January 2002, according to Statista.

The graph below, provided by politicianShows the rate of inflation in Russia over the past year.


find more statistics politician

The trade embargo Russia has faced since the start of the war, with dozens of Western companies leaving the country and closing their operations, has actually helped ease inflationary pressures, as in many cases their assets were either sold out cheap for local firms or taken over by stateWhich is able to regulate the price of the goods.

Some stuff, especially in the high tech sector, is either Expiring or no longer available due to purchase external restrictionsAlso softening the inflation dynamics that would have happened otherwise.

The value of the ruble has also been boosted to some extent by Russian companies that need to pay taxes in the coming weeks. For the country’s exporters, this means converting dollar and euro revenue into the local currency, which appreciates as a result.

But for an export-driven economy, a strong local currency poses a dilemma.

“Typically, the extra hard currency (mostly the US dollar and the euro) that Russia would receive through trade (as exports exceed imports) would be sterilized through fiscal regulation, in which the government would be forced to use its sovereign funds. There is a need to buy additional foreign exchange for and through private capital. Outflow – mostly companies and households that buy international assets,” said the bank economist.

Simply put, the exporter increases the value of the Russian currency by converting his dollar and euro revenues into rubles. To balance this, the Russian government will buy additional dollars and euros to keep the reserve under control, keeping the value of the ruble under control. Russian people and businesses buying foreign assets also helped to cool off the ruble’s growth.

“As a result, the ruble was headed for depreciation. But with the imposition of Western sanctions, imports into Russia decreased, leading to a high trade surplus,” the economist said.

“The fiscal rule was abandoned because the government could no longer buy additional petrodollars and petroeuro, and private capital ceased to flow out of Russia because Russian cash is no longer welcome in most of its usual destinations.”

Russia’s financial regulators have also imposed Series of emergency measures to prevent currency devaluation and capital flight Among the ruble’s initial fall came a cap on residents transferring money to foreign bank accounts, a temporary ban on trading ruble-denominated assets on the Moscow Stock Exchange, and a halt to payments on some external debt.

The latter measure was strengthened this week with a presidential decree allowing companies to Pay off their dollar denominated debt in rubles-Without the consent of the loan or bond holder.

While such measures typically speed up capital flight, this time it coincided with a number of external sanctions, including cutting Russia off the SWIFT payment system and Western banks turning away Russian customers. Ironically, this “perfect storm” of measures has made central bank intervention more efficient.

Moscow-based investment banker Alexander Bulgakov said, “Behind the ruble’s impressive performance is the isolation of the foreign exchange market in Russia by both domestic and international regulators.” newsweek,

“The combination of still strong export revenues, which are comparable to pre-war levels due to rising commodity prices, and a sharp decline in imports means that demand for hard currency assets has evaporated.

“So much so that Russian banks are losing their dollar assets and products en masse, forcing clients through harsh commissions and transaction fees from their FX holdings.”

Bulgakov says that both corporates and retail customers are now barred from opening hard currency accounts abroad in most jurisdictions (apart from the likes of Uzbekistan) and face restrictions on sending currency abroad.