Posts Tagged ‘foreign currency’

What Is Maintaining The Ruble-USD Band?

Monday, April 29th, 2024

I’m hardly an expert in foreign currency exchange, but something odd seems to be happening in the Russian Ruble-U.S. Dollar exchange rate.

Obviously, the ruble has lost value because of the extensive sanctions and cutoff from SWIFT following Russia’s launch of its illegal war of territorial aggression against Ukraine. For most of the last year, the exchange rate has bounced from a high of 75 rubles to the dollar to a low of just over 100 rubles to the dollar.

However, in the last month, the ruble-dollar exchange rate has traded within an extremely narrow band between just over 90 and just over 94 rubles to the dollar.

That’s a pretty unusual, and pretty narrow, band to be trading in. The question is who, or what, is maintaining that band. Russia could be intervening to make sure the ruble doesn’t go too much above 94, but it wouldn’t make sense for them (if they’re trying to defend the currency) to be sellers on the other side when the ruble appreciates to 90 or less per dollar. Could it be China, trying to move some of the rubles taken in bilateral trade, or some institutional investor somehow stuck with rubles for two two years, unloading them whenever it hits that peg?

But it’s not just the dollar! We see the same thing with the Pound:

And the Euro:

It even seems true of two of Russia’s remaining big trading partners. The Indian rupee:

The Chinese Renminbi/Yuan:

All seem to be trading within very narrow, oscillating bands.

Is it a data artifact? Other currency exchange sites don’t show quite as obvious oscillation, but all do show trading within that narrow band.

I don’t know what to make of it. I don’t know enough to hazard any more educated guesses than that. But someone seems to be manipulating ruble exchange rates, and I’m not sure why.

If you have any ideas, feel free to share them below.

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Posted in Economics, Foreign Policy | 9 Comments »

How Bad Off Is The Russian Ruble?

Saturday, November 4th, 2023

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.

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    Posted in Economics, Military, video | 13 Comments »

    Ruble Now A Penny

    Monday, August 14th, 2023

    When Russia launched its illegal war of territorial aggression against Ukraine in February of 2022, many observers thought western financial sanctions would quickly crash the Russian economy. When Russia was cut out of SWIFT, the Ruble plunged to below a penny against the dollar, but quickly recovered, at least a bit.

    Due to various reasons (gas and oil sales, gold transfers, and the many loopholes EU countries have made for their sanctions), Russia’s economy hasn’t collapsed as quickly as many expected, or hoped.

    But just today, the ruble finally slipped back below the penny-parity line again.

    Russia’s central bank called an extraordinary meeting Tuesday after the ruble crashed through the level of 100 to the dollar for the first time since March of last year as Russia’s war in Ukraine drags on and international sanctions hit trade.

    Policy makers will publish a statement on the key rate at 10:30 a.m. after the meeting, the Bank of Russia said in a statement, without giving any further details. The central bank hiked its key rate by a percentage point to 8.5% last month, the first increase since emergency measures imposed immediately after the invasion of Ukraine in February 2022.

    The exchange rate has emerged as the barometer of health for an economy battered by shrinking export revenues and its isolation from international financial markets, bringing infighting between the government and central bank into the open.

    The ruble reversed losses after the announcement, traded up 1.8% at 97.6625 at 7 p.m. in Moscow. The currency, which had broken through 101 earlier on Monday, has weakened about 27% this year for the third-worst performance in emerging markets. The central bank had sought to arrest the slump by saying it won’t purchase foreign currency on the domestic market for the rest of 2023.

    Yeah, no one trusts Russia to hold adequate foreign currency reserves a year and a half into sanctions. So that move doesn’t help.

    Lots of meaningless Russian “economy is great” blather snipped.

    Revenues of Russian oil and gas exporters declined to $6.9 billion in July from $16.8 billion in the same period last year, according to the latest central bank data. An easing of restrictions on moving money abroad has also led to accelerated capital flight as Russians race to shift funds into foreign accounts.

    “The weakening of the ruble is the result of the international screws tightening around the Russian economy, but also the cost of keeping the economy going,” said Erik Meyersson, chief emerging-market strategist at SEB AB in Stockholm. “Nobody wants to hold rubles, and the limited supply of foreign exchange from exporters weighs on the currency.”

    Of course, Russia could get out of it’s self-imposed monkey trap by withdrawing its forces from all occupied Ukrainian territory. But I don’t think anyone is hold their breath for that to happen…

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    Posted in Economics, Foreign Policy | 20 Comments »