An important but less dramatic aspect of the Russo-Ukrainian War is just what effects the war and resulting sanctions are having on the Russian economy. It’s hard for outsiders to get a handle on just how badly the Russian economy is doing. Since Russia was a net grain and oil exporter before invading Ukraine, it’s not likely to have obvious shortages in food and fuel.
One economic proxy is exchange rates on the Russian ruble, which is now stuck right around 100 to the dollar. But as Joe Blogs explains, Russia has recently undertaken several actions that indicate the situation is worse than just the exchange rates would have you believe.
“The Russian authorities have now imposed additional currency controls, which restrict Western companies that sell their Russian assets from taking the proceeds in dollars and Euros. International companies that want to exit Russia now have to sell their assets in rubles, and if they insist on receiving foreign currency for their assets, they face delays or even losses on the sums that can be transferred abroad.” Obviously I have zero sympathy for any western company still doing business in Russia, as they should have extracted themselves shortly after Russia launched their illegal war of territorial aggression in 2022, but it’s hardly going to encourage the ones that remain to put more resources into their businesses there.
Russia first started slapping currency controls down when the ruble weakened in July, with various repatriation restrictions and limiting schemes. Also, businesses wanting to get their money out were forced to pay “a contribution to the Russian budget, which is deemed to be ‘voluntary’ but in reality is mandatory, which was recently raised from 10% to 15% of the total transaction value.” The line item on that should probably read “Vlad’s Protection Money.”
Plus: “The sale of any Russian assets must take place at a discount of at least 50%.” You lie down with jackals and you wake up with fleas.
Various other indignities visited upon foreign businesses doing Russia snipped because, really, screw those guys.
Then there are the foreign income controls:
On October 11 “President Putin signed a decree mandating the reintroduction of capital controls for an undisclosed list of 43 exporting firms. The controls will last for six months, and Russia has not published the list of which companies these measures will apply to. However, they are companies in the fuel, energy, metal, chemical, timber and grain industries. Starting from October the 16th, certain Russian exporters within 60 days from the moment of receiving funds are obliged to credit their accounts in Russian banks with no less than 80% of all foreign currency received in accordance with the conditions of their export contracts. They also required within two weeks to sell on the country’s domestic market no less than 90% of foreign currency revenues credited to their accounts at Russian banks.
“President Putin believes that this will solve the problems with the ruble, and stated there are reasons to believe that the ruble rate is fluctuating because foreign currency earnings are not being returned in sufficient volume to mobilize the money supply on the domestic market.” Or, and here’s an alternate theory, rubles are worthless because no one inside or outside the country wants to keep them.
“Twelve months ago, one US dollar was trading for 61 Russian rubles, to today it’s trading for 93, which represents a fall in value of more than 50% in the last year, which is an absolute disaster from a currency perspective. The long-term value of the ruble has declined significantly.”
“There is absolutely no way that the Kremlin is happy with an exchange rate of 93 to 1.”
“Let’s not forget that the current exchange rate has only been achieved after four interest rate rises over the last three months, which means that it’s doubled in a three month period.” Russia’s interest rate is currently at 15%, which is one of the highest in the world.
Had Russia not intervened, “the ruble [to dollar exchange rate] could have hit 120 or 130. So Russia is currently doing everything within its powers to maintain the value of the ruble. But even after all of that effort the ruble is trading at its worst level at any time in history” save that right after the Ukraine invasion.
With all those rules and declining ruble values, Russian companies have less and less money to spend in international markets, which demand hard currency.
Even though sanctions are leaky, Russia’s crashing economy means the ruble is worth less, and Russian companies will find it harder and harder to buy things (like computer chips) on the international market that requires hard currency. And remember that that BRICS currency idea is going nowhere.
Expect Russia’s economy to continue declining as long as Russia is still trying to occupy Ukraine.
This entry was posted on Saturday, November 4th, 2023 at 5:14 PM and is filed under Economics, Military, video. You can follow any responses to this entry through the RSS 2.0 feed.
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13 Responses to “How Bad Off Is The Russian Ruble?”
I don’t know much about FX markets, I specialize in commodities. All I know is central banks and sovereign wealth funds will be stacking gold for the next 12-15 months well into 2025 and I’ve fairly lost interest in what national currencies will be doing for the next 7 years. Billions of people are going to take a bath.
All of us are victims of this BS, which began with the exquisitely timed inflationary spiral that the Biden Krime Krewe put us into.
Russia is screwed, long-term. Their demographics are going to kill them, and they can’t pull out of it. All the money they should have put into rebuilding their demographics got blown on yachts and other things that were supposed to have been for rebuilding their military… Which was another massive waste of money.
Every single ruble spent on the oligarchs and the military should have been out rebuilding Russian villages and infrastructure, improving people’s lives so that they might want to have kids… As it is, the fertility rate ain’t coming up until these things start to get fixed. Since they aren’t, wellllll… Yeah.
Putin had a decent opportunity to begin fixing Russia’s issues. He pissed it away, and he’s going to be remembered for that, more than anything else.
“ Russia’s interest rate is currently at 15%, which is one of the highest in the world.”
This reflects the comparative scarcity of capital in Russia. Normally, this would indicate numerous profitable opportunities exist. You could borrow Japanese yen at 1%. Purchase Japanese wheel bearing machinery. Produce wheel bearings for the transportation industry. Use the production to recapitalize Russia’s degraded railroad stock. This increases the railroad’s productivity. This would undoubtedly represent a much better return than buying Japanese bonds!
But if the borrowed funds cannot be repatriated to the Bank of Japan, or if you lose a substantial portion of your profits when your rubles are converted to yen the enterprise is futile.
Capital will seek its highest use value. There is little value and much risk in Russian investments. Interest rates will have to reflect the risk of non repayment and must increase substantially above their existing level to become attractive to investors.
Already among the world’s highest interest rates, the return to capital must increase still more. I imagine Russia’s economy will collapse before the necessary adjustments are made.
Picture a pie chart. If interest rates are 15% then 85% of profits are left to cover your remaining costs. If interest rates are 30% there remains 70% of profits to cover remaining costs. Labor is a cost of business. As the share of profits used to repay borrowed money increases the amount available to pay labor decreases.
The Russian laborer is now caught between the falling value of the ruble and the prospect of a stronger ruble purchased at the cost of far fewer of them.
Foreign currency exchange rates of small economies are easily manipulated on Wall Street and the City of London by government command, particularly when the targeted country is practicing autarky. Manipulated exchange rates really don’t tell you much about the underlying economy of the targeted country.
Despite our economic warfare, Russian 2022 GDP was $ 2.24 trillion, a 21.97% increase from 2021. Their opponents in NATO+ had about a $ 41 trillion GDP in 2022, less than a 3% increase from 2021. You can be certain that their is statistical fraud in these numbers, but the general trends revealed are still valid.
Sanctions on Russia are not working.
Also no mention here that Western governments have seized well more than $ 300 billion in Russian public assets (maybe up to a trillion!) and at least $ 60 billion in Russian private assets. It is hard to be sympathetic to Western companies which get a 15% haircut when their Russian counterparts are getting beheaded by NATO+ countries.
I visited Russia multiple times back in the 00s, the Ruble then was around 27 to 1 or so. I lived large while there, it was great! I can only imagine what it would be like now with the exchange rate as lopsided as it is. I wouldn’t mind going back to visit, but probably not for a long long time, if ever.
“Despite our economic warfare, Russian 2022 GDP was $ 2.24 trillion, a 21.97% increase from 2021.
So if we double down on sanctions it would produce a 44% increase in Russian GDP?!.
Russia’s economy has averaged .5% expansion yearly for the last five years. It’s GDP per capita is $11,000 compared to Israel’s which is $42k. Russian GDP approximates that of Italy and is half that of Japan or Germany.
“So if we double down on sanctions it would produce a 44% increase in Russian GDP?!.
Russia’s economy has averaged .5% expansion yearly for the last five years. It’s GDP per capita is $11,000 compared to Israel’s which is $42k. Russian GDP approximates that of Italy and is half that of Japan or Germany.”
The spending-based calculation of GDP is the sum of:
A. consumer expenditures
B. investments
C. government expenditures on goods and services
D. net exports
Trump’s energy policies collapsed the prices of all fossil fuels, which are most of Russia’s net exports. He devastated Russia’s GDP, because net exports are a huge portion of Russia’s GDP. The biggest single component of Russia’s GDP.
Biden’s counter policies had already increased fossil fuel prices before February 2022, but both prices and volumes rocketed up when the war started. The sanctions imposed on Russia had carve outs so Russia could continue supplying natural gas, oil, fertilizer, and agricultural products to Western Europe. Prices doubled, tripled, and quadrupled. So net exports (D in the GDP calculation) exploded upwards, sharply increasing Russia’s GDP.
This windfall was a real boost to Russia’s war economy. The Russians have increased production in their Perm military industrial complex by a factor of 7. This is blowing out Russian government expenditures on goods and services (C in the GDP calculation).
Russian unemployment is now under 3%, below the rates in every one of the NATO+ countries. The only real issue in the Russian war economy is inflation, which has been proceeding by fits and starts lately. Russian inflation is still less than NATO+ country inflation, when calculated by identical methodologies. But inflation could provoke political unrest in Russia and undermine internal support for the war.
Russians buy very little in the way of essential consumer goods from foreign suppliers, so their critical consumer inflation is strictly internal. RUB/USD has very little to do with the functioning of their internal economy, which is all that matters now that they have gone full autarky.
Sanctions, perversely, helped Putin prosecute the Ukraine War.
“The spending-based calculation of GDP is the sum of:
A. ***
B. ***
C. government expenditures on goods and services
D. net exports”
Mikhail Zadornov, Russia’s former minister of finance, attributed the ruble’s recent crash to the Kremlin’s stockpile of rupees that are stuck in India.
In an opinion piece for RBC, a local outlet, the economist called for the Russian Central Bank to intervene in the exchange rate markets, citing that the ruble’s levels would not organically reorient themselves under today’s environment.
In his view, the ruble’s current 95-per-dollar level is in part the result of Russia’s inability to convert rupees it earned via exports into its own currency, leaving the rupees stranded.
Oil exported to India adds to GDP but when you are paid with non convertible rupees you have added nothing. India bought $60B of Russian oil. Theoretically, the Indian imports are deducted from GDP and the Russian exports are added but as you can see from this example the boost to Russian GDP is illusory.
“Russian unemployment is now under 3%…”
Battlefield losses are 300,000 and conscription accounts for at least that number. Conscription adds to government spending which adds to GDP. War spending adds to GDP but building tanks to have them destroyed in Ukraine is no way to enrich your economy, son. Also, the best way to reduce unemployment and take men off the breadlines is to bury them in distant lands.
Russia’s economic health is greatly overstated, just as their army is vastly overrated.
“Oil exported to India adds to GDP but when you are paid with non convertible rupees you have added nothing. India bought $60B of Russian oil. Theoretically, the Indian imports are deducted from GDP and the Russian exports are added but as you can see from this example the boost to Russian GDP is illusory.’
Mikhail Zadornov is a political opponent of Putin who was removed from the Finance Ministry when Putin acceded to power in 1999. He actually claimed the stranded Rupee amount is only $ 30 billion, not the $ 60 billion you claim. A number of Russian officials in their Energy and Finance Ministries have take great exception to his Rupee thesis. They are claiming that Russian oil companies have traded off the rupees and returned “foreign currencies” to Russia. This suggests that the oil companies executed currency swaps.
The National Income and Product Account (NIPA) for net exports is adjusted on a monthly basis for capital flows in the financial services line. This effectively removes exports which are not paid for within the time frame of the GDP estimate, including foreign aid. Regardless, any stranded Rupees from the first half of this year would affect the 2023 Russian GDP calculation, not the 2022 calculation.
The U.S. BEA has an excellent online manual “NIPA Handbook: Concepts and Methods of the U.S. National Income and Product Accounts”. Its Chapter 8 provides the BEA’s (and IMF’s) rules for handling net exports issues in GDP calculations.
“Battlefield losses are 300,000 and conscription accounts for at least that number. Conscription adds to government spending which adds to GDP. War spending adds to GDP but building tanks to have them destroyed in Ukraine is no way to enrich your economy, son. Also, the best way to reduce unemployment and take men off the breadlines is to bury them in distant lands.
Russia’s economic health is greatly overstated, just as their army is vastly overrated.”
Even accepting your 300,000 number(s), this would only amount to 0.21% of the population of a country of 144 million. Russia’s unemployment rate is still lower than every NATO+ countries’. The 300,000 conscripted are considered employed, by the by.
“Mikhail Zadornov is a political opponent of Putin who was removed from the Finance Ministry when Putin acceded to power in 1999.”
You are not suggesting that Putin would attempt to silence his critics, are you?
“Russian oil companies have traded off the rupees and returned “foreign currencies” to Russia.”
So now the nonconvertible rupees are stuck in Russia. This financial tours de force leaves me gasping in wonder at the brilliant maneuver. Routine currency devaluations of the rupee will leave this treasure hoard a smoldering ruin, much like a T-72 hit by a Javelin missile.
“He actually claimed the stranded Rupee amount is only $ 30 billion, not the $ 60 billion you claim.“
2,000,000 barrels per day at $80 gives the true annualized number.
“The 300,000 conscripted are considered employed, by the by.”
…which adds to GDP and lowers unemployment as effectively as leaving them dead on the battlefield, as you must agree.
[…] a socialist regime, cancels opposition elections Baldilocks: I Only Know What I Read BattleSwarm: How Bad Off Is The Russian Ruble?, also, Spongebomb Squareboom Meets The Stainless Steel Throwbot Behind The Black: Astra defaults on […]
I don’t know much about FX markets, I specialize in commodities. All I know is central banks and sovereign wealth funds will be stacking gold for the next 12-15 months well into 2025 and I’ve fairly lost interest in what national currencies will be doing for the next 7 years. Billions of people are going to take a bath.
All of us are victims of this BS, which began with the exquisitely timed inflationary spiral that the Biden Krime Krewe put us into.
Russia is screwed, long-term. Their demographics are going to kill them, and they can’t pull out of it. All the money they should have put into rebuilding their demographics got blown on yachts and other things that were supposed to have been for rebuilding their military… Which was another massive waste of money.
Every single ruble spent on the oligarchs and the military should have been out rebuilding Russian villages and infrastructure, improving people’s lives so that they might want to have kids… As it is, the fertility rate ain’t coming up until these things start to get fixed. Since they aren’t, wellllll… Yeah.
Putin had a decent opportunity to begin fixing Russia’s issues. He pissed it away, and he’s going to be remembered for that, more than anything else.
Off topic …
https://www.thedrive.com/the-war-zone/does-israel-really-have-sponge-bombs-for-sealing-tunnels
🎶 Whoooooooooo’s
Trapped-in-a-tunnel 🎵
🎶 Never-daylight-to-see
SPONGE-BOMBED-HAA-MASSS! 🎵
🎶 Sponge-bombed Haa-mass
Sponge-bombed Haa-mass 🎵
🎶 Sponge-bommmmmmbed
Haa-maaaaasssss 🎵
“ Russia’s interest rate is currently at 15%, which is one of the highest in the world.”
This reflects the comparative scarcity of capital in Russia. Normally, this would indicate numerous profitable opportunities exist. You could borrow Japanese yen at 1%. Purchase Japanese wheel bearing machinery. Produce wheel bearings for the transportation industry. Use the production to recapitalize Russia’s degraded railroad stock. This increases the railroad’s productivity. This would undoubtedly represent a much better return than buying Japanese bonds!
But if the borrowed funds cannot be repatriated to the Bank of Japan, or if you lose a substantial portion of your profits when your rubles are converted to yen the enterprise is futile.
Capital will seek its highest use value. There is little value and much risk in Russian investments. Interest rates will have to reflect the risk of non repayment and must increase substantially above their existing level to become attractive to investors.
Already among the world’s highest interest rates, the return to capital must increase still more. I imagine Russia’s economy will collapse before the necessary adjustments are made.
Picture a pie chart. If interest rates are 15% then 85% of profits are left to cover your remaining costs. If interest rates are 30% there remains 70% of profits to cover remaining costs. Labor is a cost of business. As the share of profits used to repay borrowed money increases the amount available to pay labor decreases.
The Russian laborer is now caught between the falling value of the ruble and the prospect of a stronger ruble purchased at the cost of far fewer of them.
This will end with tears.
Foreign currency exchange rates of small economies are easily manipulated on Wall Street and the City of London by government command, particularly when the targeted country is practicing autarky. Manipulated exchange rates really don’t tell you much about the underlying economy of the targeted country.
Despite our economic warfare, Russian 2022 GDP was $ 2.24 trillion, a 21.97% increase from 2021. Their opponents in NATO+ had about a $ 41 trillion GDP in 2022, less than a 3% increase from 2021. You can be certain that their is statistical fraud in these numbers, but the general trends revealed are still valid.
Sanctions on Russia are not working.
Also no mention here that Western governments have seized well more than $ 300 billion in Russian public assets (maybe up to a trillion!) and at least $ 60 billion in Russian private assets. It is hard to be sympathetic to Western companies which get a 15% haircut when their Russian counterparts are getting beheaded by NATO+ countries.
I visited Russia multiple times back in the 00s, the Ruble then was around 27 to 1 or so. I lived large while there, it was great! I can only imagine what it would be like now with the exchange rate as lopsided as it is. I wouldn’t mind going back to visit, but probably not for a long long time, if ever.
[…] thanks to reader Howard for pointing out this piece on Israel’s sponge bomb (which may or may not […]
“Despite our economic warfare, Russian 2022 GDP was $ 2.24 trillion, a 21.97% increase from 2021.
So if we double down on sanctions it would produce a 44% increase in Russian GDP?!.
Russia’s economy has averaged .5% expansion yearly for the last five years. It’s GDP per capita is $11,000 compared to Israel’s which is $42k. Russian GDP approximates that of Italy and is half that of Japan or Germany.
“So if we double down on sanctions it would produce a 44% increase in Russian GDP?!.
Russia’s economy has averaged .5% expansion yearly for the last five years. It’s GDP per capita is $11,000 compared to Israel’s which is $42k. Russian GDP approximates that of Italy and is half that of Japan or Germany.”
The spending-based calculation of GDP is the sum of:
A. consumer expenditures
B. investments
C. government expenditures on goods and services
D. net exports
Trump’s energy policies collapsed the prices of all fossil fuels, which are most of Russia’s net exports. He devastated Russia’s GDP, because net exports are a huge portion of Russia’s GDP. The biggest single component of Russia’s GDP.
Biden’s counter policies had already increased fossil fuel prices before February 2022, but both prices and volumes rocketed up when the war started. The sanctions imposed on Russia had carve outs so Russia could continue supplying natural gas, oil, fertilizer, and agricultural products to Western Europe. Prices doubled, tripled, and quadrupled. So net exports (D in the GDP calculation) exploded upwards, sharply increasing Russia’s GDP.
This windfall was a real boost to Russia’s war economy. The Russians have increased production in their Perm military industrial complex by a factor of 7. This is blowing out Russian government expenditures on goods and services (C in the GDP calculation).
Russian unemployment is now under 3%, below the rates in every one of the NATO+ countries. The only real issue in the Russian war economy is inflation, which has been proceeding by fits and starts lately. Russian inflation is still less than NATO+ country inflation, when calculated by identical methodologies. But inflation could provoke political unrest in Russia and undermine internal support for the war.
Russians buy very little in the way of essential consumer goods from foreign suppliers, so their critical consumer inflation is strictly internal. RUB/USD has very little to do with the functioning of their internal economy, which is all that matters now that they have gone full autarky.
Sanctions, perversely, helped Putin prosecute the Ukraine War.
We are led by idiots.
“The spending-based calculation of GDP is the sum of:
A. ***
B. ***
C. government expenditures on goods and services
D. net exports”
Mikhail Zadornov, Russia’s former minister of finance, attributed the ruble’s recent crash to the Kremlin’s stockpile of rupees that are stuck in India.
In an opinion piece for RBC, a local outlet, the economist called for the Russian Central Bank to intervene in the exchange rate markets, citing that the ruble’s levels would not organically reorient themselves under today’s environment.
In his view, the ruble’s current 95-per-dollar level is in part the result of Russia’s inability to convert rupees it earned via exports into its own currency, leaving the rupees stranded.
https://markets.businessinsider.com/news/currencies/russia-ruble-crash-india-rupees-oil-exports-ukraine-war-sanctions-2023-8?op=1
Oil exported to India adds to GDP but when you are paid with non convertible rupees you have added nothing. India bought $60B of Russian oil. Theoretically, the Indian imports are deducted from GDP and the Russian exports are added but as you can see from this example the boost to Russian GDP is illusory.
“Russian unemployment is now under 3%…”
Battlefield losses are 300,000 and conscription accounts for at least that number. Conscription adds to government spending which adds to GDP. War spending adds to GDP but building tanks to have them destroyed in Ukraine is no way to enrich your economy, son. Also, the best way to reduce unemployment and take men off the breadlines is to bury them in distant lands.
Russia’s economic health is greatly overstated, just as their army is vastly overrated.
“Oil exported to India adds to GDP but when you are paid with non convertible rupees you have added nothing. India bought $60B of Russian oil. Theoretically, the Indian imports are deducted from GDP and the Russian exports are added but as you can see from this example the boost to Russian GDP is illusory.’
Mikhail Zadornov is a political opponent of Putin who was removed from the Finance Ministry when Putin acceded to power in 1999. He actually claimed the stranded Rupee amount is only $ 30 billion, not the $ 60 billion you claim. A number of Russian officials in their Energy and Finance Ministries have take great exception to his Rupee thesis. They are claiming that Russian oil companies have traded off the rupees and returned “foreign currencies” to Russia. This suggests that the oil companies executed currency swaps.
The National Income and Product Account (NIPA) for net exports is adjusted on a monthly basis for capital flows in the financial services line. This effectively removes exports which are not paid for within the time frame of the GDP estimate, including foreign aid. Regardless, any stranded Rupees from the first half of this year would affect the 2023 Russian GDP calculation, not the 2022 calculation.
The U.S. BEA has an excellent online manual “NIPA Handbook: Concepts and Methods of the U.S. National Income and Product Accounts”. Its Chapter 8 provides the BEA’s (and IMF’s) rules for handling net exports issues in GDP calculations.
“Battlefield losses are 300,000 and conscription accounts for at least that number. Conscription adds to government spending which adds to GDP. War spending adds to GDP but building tanks to have them destroyed in Ukraine is no way to enrich your economy, son. Also, the best way to reduce unemployment and take men off the breadlines is to bury them in distant lands.
Russia’s economic health is greatly overstated, just as their army is vastly overrated.”
Even accepting your 300,000 number(s), this would only amount to 0.21% of the population of a country of 144 million. Russia’s unemployment rate is still lower than every NATO+ countries’. The 300,000 conscripted are considered employed, by the by.
“Mikhail Zadornov is a political opponent of Putin who was removed from the Finance Ministry when Putin acceded to power in 1999.”
You are not suggesting that Putin would attempt to silence his critics, are you?
“Russian oil companies have traded off the rupees and returned “foreign currencies” to Russia.”
So now the nonconvertible rupees are stuck in Russia. This financial tours de force leaves me gasping in wonder at the brilliant maneuver. Routine currency devaluations of the rupee will leave this treasure hoard a smoldering ruin, much like a T-72 hit by a Javelin missile.
“He actually claimed the stranded Rupee amount is only $ 30 billion, not the $ 60 billion you claim.“
2,000,000 barrels per day at $80 gives the true annualized number.
“The 300,000 conscripted are considered employed, by the by.”
…which adds to GDP and lowers unemployment as effectively as leaving them dead on the battlefield, as you must agree.
[…] a socialist regime, cancels opposition elections Baldilocks: I Only Know What I Read BattleSwarm: How Bad Off Is The Russian Ruble?, also, Spongebomb Squareboom Meets The Stainless Steel Throwbot Behind The Black: Astra defaults on […]