Currency Crisis
Foreign Policy, August 14, 2023
A woman walks past a currency exchange office in Moscow on Aug. 14.Yuri Kadobnov/AFP via Getty Images
Russia’s Central Bank announced on Monday that it will convene an emergency meeting on Tuesday after the ruble fell to a 16-month low against the U.S. dollar—indicating that Western sanctions and international isolation over Russia’s war in Ukraine are taking a bite out of the country’s economy. According to new central bank data, the ruble is trading at a rate just above 101 to the U.S. dollar—a value loss of around 30 percent since the year began.
This marks the Kremlin’s weakest currency level since Russia invaded Ukraine more than 18 months ago. Now, only a handful of fiscally stricken nations—such as Turkey, Nigeria, and Argentina—are having a worse monetary year. “The whole world is laughing at us now,” said Vladimir Solovyov, a Russian TV presenter considered Moscow’s top media propagandist.
Russian President Vladimir Putin’s economic advisor, Maxim Oreshkin, wrote a column for a state media outlet blaming “loose monetary policy” for the weak currency and worsening inflation. The nation’s central bank furthered his argument, citing Russia’s shrinking trade balance; the country’s account surplus fell 85 percent year on year in the last seven months, shrinking to just $25.2 billion.
Much of that is due to Western sanctions, which have restricted trade revenue, increased costs of imports, and made migrant labor less attractive in Russia during a time when Moscow is battling its worst labor shortage in decades. Still, Russia’s GDP exceeded expectations by growing 4.9 percent in its second quarter, mostly due to consistent oil revenue deals and intense government spending on war production efforts.
To stop inflation from rising further, Russia’s Central Bank raisedinterest rates last month. And on Thursday, it halted foreign-currency purchases for the rest of the year. But economists maintain that inflation will reach as high as 6.5 percent by the end of 2023.
If the Kremlin does not shore up its currency soon and decrease inflation fears, the nation’s economic crisis could spill into the streets. “It is important for the Central Bank of Russia to understand that until now, unfortunately, the dollar exchange rate is not only an economic indicator, the exchange rate has a significant impact on the social rights of our citizens,” wrote Russian Sen. Andrey Klishas on Telegram.
