Ruble price1/20/2024 Declining value of energy exports drives overall exports lowerĬrude oil, petroleum products, natural gas and liquefied natural gas (LNG) made up nearly half of all Russian exports in 2021. Explaining that discrepancy is beyond the scope of this article, but importantly, the trade surplus has been this low only twice over the past decade-during the COVID-19 crisis of early 2020 and in January 2016. Before 2022, these two series were nearly identical, but after the invasion, a gap opened between the two. The chart plots exports and imports from two sources, International Monetary Fund Direction of Trade statistics and the Russian central bank. There has been a discrepancy in Russian trade data since February 2022. The chart, which begins in 2013, shows that Russia has run a strong trade surplus, but this surplus has fallen over the 18 months since the invasion. Why did the stable equilibrium with a strong trade balance fall apart? Chart 2 plots Russian goods exports and imports. This continued to be the case until December 2022, when the ruble’s value steadily declined, falling 40 percent through mid-September 2023. In our previous article in 2022, we concluded that as long as the Russian trade surplus held, the Russian currency had found a new, stable equilibrium. As Chart 1 shows, after the immediate depreciation following the invasion, the Russian currency appreciated, and by the summer of 2022, the ruble traded well above prewar levels. The combination of Western sanctions and central bank capital controls removed this downward pressure, and the Russian currency appreciated. Taken together, the trade account put upward pressure on the value of the currency, while net foreign purchases of overseas assets applied downward pressure. On the eve of the Ukraine invasion, Russia had a large trade surplus, and net capital flows into Russia through the capital and financial account were negative, that is, investment capital was flowing out. Similarly, net purchases of a country’s assets put upward pressure on the value of the currency. In balance-of-payments accounting, a country’s net receipts of capital can be divided into a current account (the trade balance plus net income from overseas investment) and the capital and financial account (net receipts due to purchase and sale of foreign assets).Ī positive current account-a trade surplus-puts upward pressure on the value of a currency as more capital flows into a country than flows out. In May 2022, we concluded that the combination of Western financial sanctions and Russian capital controls stabilized the currency by effectively shutting down a large portion of the capital and financial account. The response prevented the ruble’s collapse. But the Russian central bank reacted, sharply boosting its policy rate and imposing strict capital controls to limit capital outflows. Initially, in early March, this appeared to work. The moves aimed to collapse the Russian currency, making it hard to finance and conduct the war. Severe limits were placed on a number of Russian banks, and most foreign exchange reserve assets of the Russian central bank were frozen. The Group of Seven and its allies imposed harsh financial and economic sanctions on Russia beginning in late February 2022, following the invasion. Initial impact of sanctions appears fleeting This time, the ruble’s decline is attributable to trade sanctions and plunging export earnings rather than sanctions affecting the central bank and individual financial institutions. However, the current currency malaise is different. The move is reminiscent of Russia’s 1,150 basis-point (11.5 percentage-point) policy rate increase in response to Western financial sanctions after its Ukraine invasion. To stabilize the currency, the Russian central bank held an emergency meeting in August and raised interest rates from 7.5 percent to 11 percent. Russia’s currency is losing value, falling 40 percent against the U.S.
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