The rouble tumbled past 100 to the dollar on Monday, despite an emergency interest-rate hike from Russia’s central bank. Officials say global trade conditions have deteriorated, but the real reason is clear: Russia’s war costs are soaring. And that has led to a rash of new sanctions against Russian companies and people, plus restrictions on the country’s foreign currency reserves. https://my-forex-group.com/
The sanctions have prompted a major shift in Russia’s foreign exchange (FX) transactions, moving away from the currencies of countries Moscow considers “unfriendly” to Russia. In fact, the FX market’s share of transactions involving the euro and the dollar fell to their lowest levels since the Russian invasion of Ukraine in February 2022. In their place, transactions involving roubles and Chinese yuan have soared.
This dedollarization is a key part of Russia’s strategy of reducing the country’s dependence on Western financial networks and the dollar, but it also means that the Russian economy is growing more dependent on China and its own currency. But the process may run into trouble if China decides to take steps to reduce its own dependency on the dollar, which would likely lead to friction with its ally Russia.
As a result, it is likely that the FX market in Russia will experience more volatility, but the impact on global markets is unlikely to be as severe as some fears have suggested. While the rouble has plunged, it is still well above its lows of last year and has not yet reached the level where the Russian government will be forced to intervene to save it.
Nonetheless, the new sanctions against the FX market will impose significant costs on the country’s exporters and will likely lead to a contraction of its international business activity. For example, the US has frozen assets of two large state-owned banks — Vnesheconombank and Promsvyazbank — as well as several Russian individuals. The US has also banned the participation of foreign entities in the secondary market for Russian sovereign debt. And the EU has imposed an asset freeze on 351 Russian politicians and a ban on trade with separatist regions of Ukraine.
The new sanctions will also force Russian companies to convert more of their revenues into roubles, potentially up to 90%. These conversions will likely be a mandatory procedure for all exporters, and the companies’ failure to comply with them could have consequences including fines or even the suspension of government support measures, according to a source at an exporter. The rouble has already fallen by more than 29% this year, and the new measures may accelerate its decline. As a result, the economic damage is mounting for businesses and consumers, and the political risk is rising as well. The new rules could spark more protests and calls for a boycott of American products. Maia Nikoladze is the assistant director for the Atlantic Council’s GeoEconomics Center and writes the Money & Power column. Follow her on Twitter @Mai_Nikoladze.
Guia Local 