Some of the recovery is artificial, made possible by strict limits that the central bank, the Bank of Russia, has placed on currency exchange, withdrawals and hard-currency transfers overseas. But it is also due to a very real factor still working in Russia’s favor: strong oil and gas exports that bring a flood of hard currency into the country.
“I think the key signal is that, for now, it appears the Bank of Russia managed to avoid a deep financial crisis,” said Elina Ribakova, deputy chief economist at the Institute of International Finance, an association of banks and finance companies. “We were concerned that bank runs as a result of sanctions could bring down some of the more systemic [state-owned] banks. It appears that it has not happened.”
In the days after Russia’s invasion began on Feb. 24, the ruble fell from about 80 to the dollar to a low of 120 to the dollar. It has now climbed back to 84, according to the central bank’s official rate.
Some imported goods are disappearing from store shelves as global shipping companies halt deliveries, and some manufacturers are suspending production because sanctions are preventing them from buying electronic components.
Hundreds of Western corporations have stopped operations in Russia, depriving the country of consumer goods and thousands of jobs. And tens of thousands of young professionals have fled the country out of opposition to the war or fear of sanctions, causing a devastating brain drain.
Amid all of this instability, the ruble’s recovery, even if manipulated by currency controls, helps the state convey an image of control, said Janis Kluge, an economist at the German Institute for International and Security Affairs in Berlin.
“The psychological effect is very important,” he said. “It’s very important what the population thinks about the health of the economy, and the ruble is one of the main indicators that every Russian knows.”
The official rate doesn’t necessarily reflect the ruble’s real value, economists say. The central bank has banned citizens from exchanging rubles for dollars until Sept. 9, creating a black market where the ruble trades at weaker values than the official rate, according to Russian economists and media reports.
One of the toughest sanctions imposed by the United States and its allies was a freeze on the Russian central bank’s foreign currency reserves. That was designed to stop Russia from using its stash of dollars and euros to buy rubles to prop up the ruble’s value.
But Russia has found a partial way around that punishment: The central bank in late February began requiring exporting companies to exchange 80 percent of their hard-currency revenue for rubles, creating new demand for Russia’s currency.
Russia’s continuing oil and gas exports, amid high global prices, has ensured a steady stream of hard currency to support this state-mandated exchange.
“Yes, this is not a freely determined ruble exchange rate, but we could have easily seen a scenario where a [central bank] would have not managed to prevent further ruble depreciation even with emergency measures. Furthermore, Russia is continuing to enjoy large [foreign currency] inflows as it is still selling commodities,” Ribakova said.
Just after sanctions hit, long lines appeared at ATMs as panicked Russians queued to withdraw cash, worried about a collapse of the currency and the banking system. That forced banks to borrow heavily from the central bank to meet demand for withdrawals, Ribakova said. But this borrowing has lost in recent days, showing that the banking sector is stabilizing, she added.
The ruble’s recovery, and the strong financing that oil and gas revenue are giving Russia’s government and war effort, have heightened calls from Ukraine and its supporters for an embargo on Russian energy exports.
The United States and United Kingdom have stopped buying Russian oil and gas, and Poland on Wednesday said it will halt Russian oil imports by the end of the year.
Other European nations, including Germany, have vowed to drastically cut imports but have been reluctant to embrace full embargoes because they rely heavily on Russian energy.
“If we see more shelling and bombing, I would say pressure will be growing on Germany, in particular” to adopt a full embargo, said Maria Shagina, a sanctions expert at the Finnish Institute of International Affairs.
On a scale of 1 to 10, the current sanctions on Russia are a 7 or 8 in intensity, says Edward Fishman, a former State Department official who worked on sanctions policy during the Obama administration.
In addition to halting purchases of Russian oil and gas, there are several other steps Western countries can still take to increase pressure, he said. These include adopting full blocking sanctions on more Russian banks and companies, and cutting more banks from SWIFT, the global financial messaging system that serves as the backbone for bank-to-bank transactions worldwide.
At the moment, only one of Russia’s five largest banks, VTB, has been cut off from SWIFT and subjected to full blocking sanctions, said Fishman, who is now adjunct professor of international and public affairs at Columbia University.
“There was sort of a big bang of sanctions in the first 10 days of Putin’s declaration of war … but I think pressure has leveled off in the last few weeks,” he said.