Dollar Russian Ruble

The ruble trouble started shortly after Russia invaded Ukraine last February, which prompting a slew of Western sanctions ultimately resulting in an all-time low of 120 rubles against the U.S. dollar. At that time, the Kremlin also introduced capital controls, making exporters exchange at least 80% of foreign currency revenues in the form of U.S. dollars, euros or other currencies, for roubles. Three months later, the threshold was dropped to 50% before it was scratched altogether.

Russia policymakers have been on edge as the currency neared the psychological threshold of 100 rubles to a dollar last week. The ruble actually crossed that barrier in August, sparking an emergency central bank meeting, a series of rate hikes amounting to 550 basis points, and a decision to halt foreign currency purchases on the domestic markets over the following months.

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Rising crude prices have also played a role: Oil is one of Russia's main revenue sources, and the nation has pushed for energy exporters to sell their foreign-exchange earnings for rubles on the currency market.

Russian central bankers have also moved to dump foreign currencies. In September, the Bank of Russia said it would sell 21.4 billion rubles worth of foreign currency on the domestic market, up 830% from the amount it had originally planned.

TOKYO -- Russia is increasingly relying on the ruble and the yuan for cross-border payments, financing and more about a year since it invaded Ukraine, with Western sanctions limiting access to the dollar and euro.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) last March disconnected several major Russian banks from its global settlement network over the war. The dollar and the euro accounted for 34% and 19% of Russia's export payments as of September, according to its central bank -- down from 52% and 35% in January, before the sanctions took effect.

E.O. of March 11, 2022 prohibits the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of U.S. dollar-denominated banknotes to the Government of the Russian Federation or any person located in the Russian Federation. However, Russia-related General License (GL) 18 authorizes certain transactions that are ordinarily incident and necessary to the transfer of U.S. dollar-denominated banknotes for noncommercial, personal remittances from: (i) the United States or a U.S. person, wherever located, to an individual located in the Russian Federation; or (ii) a U.S. person who is an individual located in the Russian Federation.

Note that GL 18 does not authorize U.S. financial institutions to process transactions for the provision of U.S. dollar-denominated banknotes to foreign financial institutions for further distribution or supply to the Government of the Russian Federation or any person located in the Russian Federation.

The Russian rouble has suffered its biggest intraday fall of the year as it tumbled to the lowest levels against the dollar and euro since April last year in the face of a foreign currency crunch in Moscow and the sale of Western businesses in Russia.

The rouble nosedived to 113 to the dollar after President Vladimir Putin ordered the invasion of Ukraine in February 2022, though the Russian central bank and finance ministry stabilised the currency and it strengthened to 50 per dollar in July.

Traders said the Russian currency was under pressure from a cocktail of problems including the sale of Western assets to domestic investors, which stoked demand for dollars, while lower oil prices in March cut export revenue.

The reported transfer of $1.21bn to Shell for its stake in the Far East Sakhalin-2 gas project was cited by traders as a major factor as the daily trade in the rouble-dollar pair is only about $1bn per day, down from more than $3bn a day before the war.

Russian-Chinese cooperation on cryptocurrencies will also intensify. Right now, Russia is just testing cryptocurrency payments for foreign trade transactions, but the central bank plans to develop a model for transborder payments using the digital ruble (a central bank digital currency, or CBDC) this year. There are two options on the table: bilateral agreements on integrating CBDC platforms, or connecting the country to a unified integrated platform.

A lower exchange rate allows Moscow to transfer the dollars it earns from selling oil and natural gas into more rubles to pay pensions and run government agencies. But the drop in value went a bit too far, and officials are now tightening it up, analysts say.

The Russian currency passed 101 rubles to the dollar Monday, hitting the lowest level in almost 17 months. The ruble strengthened after the rate hike announcement but has since given up some of those gains to hit about 98 to the dollar.

Inflation reached 7.6% over the past three months, the central bank said. It also hiked rates 1 percentage point last month, saying inflation was expected to keep rising and the fall in the ruble is adding to the risk. Its next meeting is planned for Sept. 15.

The other main risk of a lower ruble is to the banking system. Many Russian banks have borrowed dollars or euros, but make profits in rubles. Now they need twice as many rubles as two years ago to pay back this debt. Worse still, many of the clients these banks lent to are in a similar position. Russian firms are struggling to pay off or refinance foreign currency debt.

The combination of Western sanctions and central bank capital controls removed this downward pressure, and the Russian currency appreciated. 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.

Concerns about the medium- and long-term development of the US economy. The US economy has hit a rough patch in recent years and lacks growth potential. Due to the impact of the COVID-19 epidemic, it has shown signs of recession or even stagflation. The impact of American shale oil and alternative energy sources on the petrodollar system deepened. The total factor productivity of the United States is declining. The pretax profit of enterprises in the US registers zero growth. All these and many other factors make people pessimistic about the medium and long-term development of the US economy.

Concerns about US debt losing its role as a safe haven. Countries around the world, in order to maintain and increase the value of their dollar reserves, are converting US dollars into US debt to earn meager interest income. Therefore, the large amount of US debt, together with the subsequent interest income, attracts investors from all over the world. However, in recent years, the role of US debt as a safe haven has been steadily weakening. In the first half of 2021, the US debt rate generally declined. The US debt issued by the US Treasury is likely to be useless. Many US debt holders are disposing of it. US Treasury International Capital (TIC) report shows that as of the end of April 2021, US debt held by foreign holders was 7.07 trillion US dollars, almost 50 billion US dollars less than at the beginning of the year.

Concerns about long-term depreciation of the US dollar. The global dollar supply is constantly declining, which is accompanied by a long-term depreciation of the US currency. In the medium and long term, the dollar will continue to decline, and its share as a reserve currency in the international monetary system will decrease. Whenever there is a crisis, the US dollar depreciates sharply to stimulate exports, employment, and a quick economic recovery when other countries are still trapped in difficulties. The US dollar, as an international reserve and safe-haven currency, is strengthening due to rising demand, making the whole world pay for the financial crisis. In fact, as long as the American currency is issued in huge quantities, the international financial crisis will occur periodically. The currencies of developing countries are mainly pegged to the US dollar and they tend to depreciate in line with its growth. The cycle of rising and falling of the dollar, in essence, leads to an imbalance in the international economy, which will trigger the next round of the financial crisis.

Concerns about the dollar-oriented international financial system. The shortcomings of the dollar-based international financial system have caused a cyclical imbalance in the world economy and frequent financial crises. In a dollar-dominated system, the US can issue money without the obligation to maintain its stable exchange rate. There are too many derivatives in developed US finance, including more than 300 trillion of various borrowed financial assets. Bubbles in GDP have been growing there steadily for more than a decade. This, together with industrial depletion, excessive credit consumption, and zero savings, makes the country increasingly vulnerable to the financial crisis. Once the US debt crisis breaks out, it will definitely affect the whole world. In addition, the US threatens to impose sanctions at every turn, directly or indirectly affecting the economies of other countries, causing economic instability, which in turn will lead to regional and even global financial collapses. Since achieving independence, Russia has experienced many financial upheavals and it is therefore in dire need of financial and economic stability.

Diversification of the international financial system. The status of the US dollar as an international currency is based on its being pegged to oil. At present, this international monetary system has reached a point where it must be changed. On the one hand, the international community is increasingly dissatisfied with the petrodollar-pegged system. There are many problems in the international financial system centered on the US dollar, as the exchange rates of major currencies experience sharp ups and downs with increased foreign exchange risk. As a result, commodity prices fluctuate wildly around the world hindering normal international trade and investment. On the other hand, in recent years, the rapid development of new energy around the world has affected the petrodollar system, and the speedy progress of the shale oil industry in the United States has turned America from an ally into a competitor of Saudi Arabia and other energy exporting countries. The international financial system based on petrodollars was shaken. Economies around the world are actively looking for a way to break away from the hegemony of the dollar, hence the emergence of the Eurozone, the rapid development of the Asian Infrastructure Investment Bank (AIIB) and the creation of the BRICS Bank, etc. All these facts show that countries dedollarize in their own way. Dedollarization is no longer a fragmented choice of a few countries; instead, it is becoming a global trend. Russia, as a huge country with great global influence, has taken many measures in this direction, reflecting the general needs and future trends around the world. 2351a5e196