Russian Ruble Financial Crisis 2022: What to Expect?

Ever since the Russian-Ukraine crisis in 2022, the Russian Ruble has touched new lows. Financial markets crashed in Russia and people rushed to exchange currency after the sanctions on Russia were put up by countries around the globe. Individual and institutional international transfers have been halted and most Russian banks are now banned from the Swift financial network, which is a secure messaging network used for financial transactions between banks around the globe.

In our article, let us look at the Russian Ruble Financial Crisis and how it is impacting the global economy.

What is the Russian Ruble financial crisis?

The Russian Ruble financial crisis emerged after the Russian invasion occurred, and the US and European Union pitched in with sanctions against the Russian economy, depreciating the Russian currency against the US dollar. The Ruble crashed to a new low in 2022 after the western countries froze around $300 billion forex reserves of Russia.

This also led to aggressive capital controls, an elevated inflation rate of around 14.3% in August 2022, and interest rates of about 9.37% per annum in the same month.

What led to the Russian Ruble crisis?

After Russia’s military attack on Ukraine in 2022, the European Union and the United States of America, along with several other nations like South Korea and Canada, have imposed strict sanctions against Russia’s largest enterprises and financial institutions. Sanctions have been imposed against Russia’s central bank as well, pushing the country’s financial system into a long-term crisis.

Investors started losing faith in the currency right after Russia’s central bank increased interest rates by 6.5% and started withdrawing their investments. Some of the many international sanctions imposed on Russia’s institutions, banks, businesses, individuals, monetary exchanges, imports/exports, and more are –

• The US Foreign Assets Control has banned an American from engaging in transactions with the Central Bank of Russia and the Russian Direct Investment Fund.
• Singapore has imposed banking sanctions against Russia.
• The EU has imposed a price cap on Russian oil imports, where they will be setting a maximum price in the month of December for the same.
• The UK government has announced that all the assets of the major Russian banks operating in the UK will be frozen, and they will be excluded from the British financial system.
• The UK government has also announced a deposit limit for citizens of Russia residing in the UK.
• Assets of hundreds of Russian individuals and entities have been frozen in the UK.

Impact on the Russian economy

The sanctions against the Russian economy have certainly led to an economic contraction. The Ministry of Economic Development expects the GDP to fall by 2.9% at least, whereas its central bank expects a 3.5% decline for the year 2022. The Russian president ordered an increase of 10% in pensions and wages to combat the soaring inflation that reached 12.7% in October 2022.

There was also a sharp decline in Russia’s oil exports to most of its partners, whereas the imports increased. However, natural gas and crude oil are the most significant export commodities of Russia, which increased by 29.3% in price in May 2022. Following the invasion, weekly oil shipments from Russia declined to -15%, and the country ended up banning ammonium nitrate export outside the Eurasian Economic Union after the heavy sanctions from the global economy. Russia has increased its exports of pharmaceuticals from Germany by 215.1 million euros as of May 2022.

The ongoing crisis also led the Russian central bank to increase its interest rates to 20%, which led to a fall in Foreign Direct Investment by $17.1 billion as of June 2022. The country's external debts also increased and totaled over $400 billion in September 2022.

The Russian economy was also slightly impacted with respect to employment generation as the unemployment rate as of September 2022 increased to 3.9%, which was slightly more than before.

How will the crisis impact the global economy?

• Ukraine’s economy has contracted by more than 35%, with over 14 million of its people displaced.
• Europe and Central Asia are one of the biggest partners in Russia and their activities have remarkably declined in the second half of 2022.
• Supply chains across the globe have been disrupted.
• Global oil, gas and coal prices have skyrocketed.
• Countries with high oil, gas, and coal demands, like the UK, are going to be the hardest hit by gas shortages.
• Russia’s counter-sanctions have impacted the economies of Australia, the EU, the US, Norway, Canada and Japan by banning food imports from these regions.
• All countries who have imposed sanctions against Russia need to pay for Russian exports only in Rubles.
• All Russian citizens are prohibited from conducting any transactions with countries who have imposed sanctions against Russia, impacting those economies financially.
• Companies from these countries cannot buy any non-Ruble currency in Russia, affecting forex rates of those currencies.
• Russian brokers will sell no securities belonging to non-Russian companies and individuals.
• No non-Ruble currency can be deposited into Russian banks anymore.
• 80% of non-Ruble currency received by foreign trade needs to be sold.
• Non-Ruble currency cash exports from Russia over $10,000 are not allowed anymore.

What is the state of the Russia Ruble crisis now?

Despite sanctions and the financial crisis in Russia, the Russian currency has managed to increase in the last few months compared to the first half of 2022. However, the tension between Russia and the world economy is still persistent and will go on as long as the invasion does. Nevertheless, 2023 expectation of the Ruble looks optimistic with the currency already strengthening in the forex market and holding onto an uptrend.