Magic pass? Ruble becomes the best performing currency in the world — understand what made the currency make this leap

If the president of Russia, Vladimir Putin, if he were a sportsman, he would certainly be in athletics — those who practice hurdles. Shortly after Russia invaded Ukraine and sanctions were imposed on Moscow, the ruble plummeted to historic lows.

However, four months later, the ruble has become the world’s best-performing currency against the dollar.

Last week, the ruble traded at its highest level against the dollar since June 2015.

The Russian currency has appreciated about 35% so far this year, outperforming all major currencies, and more than doubled in value from the post-invasion low.

What is the magic behind the ruble?

While Russia’s economy has held up better than many expected, the outlook is bleak, with double-digit inflation and most economists predicting a deep recession.

So why does the ruble continue to appreciate so much? The answer to that question lies in the country’s central bank.

Capital controls imposed by Russia’s monetary authority, including those that forced exporters to exchange part of their earnings for rubles, increased demand for the Russian currency.

Higher gains from oil and gas exports, which increased as prices rise and demand in Asia offsets cuts in Europe, kept the ruble higher.

At the same time, Russian imports have fallen sharply, in part as a result of the departure of many foreign companies from Russia, which also support the ruble.

loosening the bonds

In late February, after the invasion of Ukraine, the ruble fell to its weakest level ever against the dollar.

At the time, Russia’s central bank more than doubled its interest rate to 20% as part of measures to prevent rubles from leaving the economy.

Since then, some restrictions have been loosened and rates have been reduced to 9.5%, where they were before the invasion.

Side effects of a strong ruble

But not everything is a party when it comes to a stronger ruble. While the appreciation of the Russian currency helps to ease inflation, this move also puts pressure on Russia’s budget — which relies on energy sales that are often denominated in dollars.

Also, many economists say that a strong ruble is a poor indicator of economic performance because it only reflects the fact that imports have fallen so much that importers simply don’t need as much foreign currency because they can’t buy goods from Western countries.

*With information from Markets Insider and The New York Times

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