This week Russian President Vladimir Putin he said that Russia has resisted the “economic assault” that the West has put in place with the harsh economic sanctions. Putin deliberately used the word “blitzkrieg”, a blitzkrieg, an attack strategy used by Nazi Germany in World War II, and to prove that sanctions were not working as the West hoped he gave the example of the ruble: the currency Russian during the early stages of the invasion of Ukraine had collapsed precipitously, losing more than half of its value, but in recent weeks has recovered much of what was lost. Today its value has returned to pre-invasion levels.
The debate on the effectiveness of economic sanctions against Russia is quite heated, even in the West, but despite some doubts (mainly related to European countries’ payments for gas and oil) it is difficult to deny that their effect on the Russian economy is devastating: according to the forecasts of the Russian authorities, the country’s GDP is expected to shrink by 10 percent this year, and Putin himself said that citizens should expect inflation and unemployment.
Other estimates are even harsher: according to the US government, Russian GDP could shrink by 15 percent. Also with regard to the ruble, Putin’s example is not really realistic: according to various analyzes, the recovery of the ruble in recent weeks is “artificial”, and does not reflect the real value of the Russian currency.
It is mainly the work of Elvira Nabiullina, the Russian central banker. An extremely well-trained economist – and much appreciated even in the West before the invasion – Nabiullina was a fundamental ally of Putin’s regime in these weeks of war. Such as he wrote il Wall Street JournalHowever, in the course of the Ukrainian conflict Nabiullina denied (and largely destroyed) everything she had done since becoming governor of the Russian Central Bank in 2013.
If until a few months ago Nabiullina had worked to integrate the Russian economy as much as possible into the world one, in recent weeks she has moved decisively to do the opposite, that is, to isolate it and protect it, as far as possible, from Western sanctions. The fact that Nabiullina lent herself to help the Russian regime amazed and embittered many colleagues and experts of her, who considered her an independent figure: at the beginning of the invasion there were rumors about the possibility that the central bank wanted to resign, but they have been denied. Indeed, Nabiullina has been renewed for another term.
Elvira Nabiullina nel 2016 (AP Photo/Ivan Sekretarev)
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Much of the work done by Nabiullina aims to support the value of the ruble as much as possible. In the first place, it has enormously raised interest rates, to 20 per cent: for comparison purposes, the rates of the European Central Bank are currently at 0 per cent, of the US FED at 0.5 per cent.
Above all, the Russian Central Bank has imposed a very tough “capital control”, that is a series of measures that effectively prevents both foreigners and Russian citizens from selling rubles abroad in exchange for other currencies. In addition, the government has required all state-owned companies to convert much of their cash reserves and revenues from the beginning of the invasion into rubles – the most notable example being the gas companies, which have recently been you were forced to convert to rubles 100 percent of payments they receive from European countries for supplies.
The result of these measures is that transactions in rubles have practically stopped: “The ruble is no longer a currency that can be converted freely”, he said a Politico Iikka Korhonen, a Finnish Central Bank analyst. And in this context, the transactions on the ruble that are permitted by the Russian authorities are almost exclusively those that increase the value of the currency, such as purchases of rubles by state-owned companies.
The rise of the ruble is therefore artificial because (with a certain degree of simplification and exceptions) the Russian Central Bank has frozen transactions that could have endangered the currency, allowing only those that benefit it.
A graph of Bloomberg showing the sharp decline in the volume of trading in rubles
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This does not mean that the Russian Central Bank has saved the ruble: many analysts expect that, once the capital control measures are eliminated and the ruble returns to being a freely floating currency on the market, there may be new collapses, although much depends on the overall economic situation of Russia: “If the barriers were removed, the currency would be at a very different level”, he wrote Bloomberg.
Keeping the ruble stable is also important for the Russian regime on a political level: it serves Putin to demonstrate, especially to neutral or close to Russia countries such as China and India, that the economy is holding up despite the sanctions.
The consequences are likely to be very severe: raising interest rates usually tends to damage economic growth, and Russian interest rates are very high at the moment, to the point that the Central Bank has reduced them slightly these days, to 17 percent.
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