The View | How Russia’s rouble rebound masks real threat to its economy
- The rouble’s return to its pre-war exchange rate with the US dollar should not be mistaken as a sign of its strength or resilience
- Its recovery is a reflection of unprecedented restrictions on imports and higher oil and gas prices, which will become drags on the Russian economy
The West has exhibited almost unprecedented unity and resolve in its response to Russian President Vladimir Putin’s war on Ukraine. Within just three days of the invasion, Western governments had frozen much of the Russian central bank’s foreign-currency reserves within their respective jurisdictions.
This move triggered financial panic within Russia and spurred a powerful policy response. On February 28, the central bank imposed strict capital controls, tightened currency-trading restrictions and raised its key policy rate from 9.5 per cent to 20 per cent.
Russia’s government then ordered all Russian exporters to repatriate and exchange 80 per cent of their export revenues for roubles, and the central bank introduced a 30 per cent commission – later reduced to 12 per cent – on foreign-currency purchases. Various categories of buyers were banned from purchasing US dollars, and holders of foreign-currency-denominated bank deposits faced major constraints withdrawing their savings.
Despite this swift policy response, however, the rouble’s official exchange rate moved from 81 roubles per US dollar before the war to 139 per dollar on March 9, though the black-market rate reportedly was much higher. Inflation accelerated substantially, with the growth rate of the official consumer price index rising to 2 per cent per week in the first three weeks of the war before slowing to 1 per cent per week, or 68 per cent per year.
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The rouble has since returned to the 80-per-dollar range, but its appreciation is not necessarily real. If a currency’s trade is severely restricted, its exchange rate does not reflect its market value. During the Soviet era, the Communist Party’s flagship newspaper Pravda consistently reported that the rouble’s official exchange rate was 0.6 per US dollar, but nobody viewed that as a proxy for the currency’s real strength.