Ruble plummets to wartime low amid new U.S. sanctions
The Russian ruble has reached its lowest level since the beginning of the invasion of Ukraine, with the exchange rate exceeding 105 per US dollar. The sharp weakening of the Russian currency comes amid new sanctions targeted at Gazprombank and rising tensions between Russia and Western countries.
The ruble has once again lost value. Russian Finance Minister Anton Siluanov presents the current situation in a positive light, describing the depreciation of the ruble as "very, very favorable" for exporters. According to the minister, a weaker currency allows Russia to more effectively finance military operations in Ukraine by reducing the real costs of purchasing weapons and paying soldiers. However, experts point out that this approach may have long-term negative consequences for the Russian economy.
Market analysts unequivocally indicate that the dramatic fall in the ruble's exchange rate is due to new U.S. sanctions targeting Gazprombank and over 50 Russian banks with international ties. On the international currency market, the ruble reached a level of 107 per dollar and 113 per euro, representing the lowest value since March 2022.
Adjustment of the settlement system
The Central Bank of Russia has been forced to set the official ruble exchange rate at 110.49 per euro. This situation is a direct consequence of June's events when U.S. sanctions forced the Moscow Exchange to suspend trading in dollars and euros. Since then, official exchange rates have relied solely on over-the-counter transactions involving major exporters and commercial banks.
The current collapse of the ruble has severe consequences for average Russians. The weakening of the currency translates into a significant increase in the prices of imported goods, which, combined with already high inflation, poses a serious burden on household budgets. It is worth recalling that the Russian currency hit a historic low of 150 per dollar shortly after the invasion of Ukraine began in February 2022.
Impact of sanctions on the financial system
Market experts highlight the particular significance of the latest sanctions against Russian banks. Until now, Gazprombank remained the last large Russian financial institution that had not been subject to U.S. restrictions. The new limitations significantly hinder the conduct of international financial transactions, directly affecting Russia's foreign trade.
According to market data, since the beginning of the year, the ruble's exchange rate against the dollar has fallen by 14 percent. Despite the Central Bank of Russia maintaining high-interest rates, the country continues to experience high inflation. Particularly concerning is the rise in prices of basic food items—milk, potatoes, and butter—which places an increasing burden on Russian consumers.
The situation is further complicated by the Kremlin's fiscal policy. Since 2022, Russia has consistently increased military spending, allocating significant funds for the purchase of military equipment, armaments, and increased salaries for military personnel. A system of one-time payments for military families has also been introduced, further straining the state budget.
Analysts also point to a decline in Russia's revenue from energy exports. Last year, these revenues decreased by about one-quarter as a direct result of Western countries' price cap on Russian oil. This situation, combined with rising military expenditures, poses significant challenges to Russia's financial stability.
Another challenge for the Russian economy remains the issue of international trade. After the suspension of standard settlement channels in dollars and euros, Russia has been forced to seek alternative solutions, including increasing the use of the yuan in trade with China. However, these changes are unable to fully compensate for the lost opportunities to conduct transactions in major international currencies.
