Even though the Ruble was down 40% at 139 rubles to the USD after Russia invaded Ukraine, the Russian ruble recovered dramatically. At the time of this writing, a US dollar is equal to 64.49 Ruble which is a better value compared to the time before the invasion and the sanctions. How did the country manage to recover its currency?
The first reason that they had the chance to recover their currency is natural gas. The sanctions on Russia are designed to prevent Russia’s ability to gain foreign currency. But several European countries continue to buy Russian gas because they have become so dependent on it and they do not have any alternative sources. Also, the increase in oil and natural gas prices and Russia’s trading relationships with other big economies, such as China and India, helped Russia’s economy to gain foreign currency. This has eased concerns that Russia would become insolvent.
Another hole in the sanctions is the divisions in debts. One of the most important and impactful sanctions on Russia was freezing its foreign accounts. Russia holds approximately $640 billion worth of euros, dollars, yen, and other foreign currencies in banks around the world. About half of them are located in the USA and Europe. The sanctions blocked Russia’s access to that money, except when it came to making the interest payments on its sovereign debt. The US Treasury left a window open to allow financial intermediaries to process payments for Russia. That window helped Russia a lot even though it is scheduled to close. Without that opportunity, Russia might have needed to raise rubles by selling dollars which would not have had a good effect on the currency in the future.
On February 28, the Central Bank of Russia increased interest rates to 20%. So the Russians who might have attempted to sell their rubles to buy dollars or euros, now have a big enthusiasm to keep the money instead. The fewer rubles that go up for sale, the less downward pressure there is on the currency. So, the pressure on Russia’s shoulders was released.
The next requirement, which Russia made mandatory, was that Russian businesses have to trade 80% of any money those businesses make overseas into rubles. This means that if a Russian steelmaker makes 200 million euros selling steel to a foreign company, it has to turn the money into rubles. A lot of different Russian companies are doing a lot of business with foreign companies, making a certain amount of dollars, euros, and yen. The requirement for the businessmen had a significant effect on the Russian currency.
Another requirement that Russia is trying to make mandatory is to tell certain buyers of Russian natural gas that they must pay the bills in rubles. Natural gas contracts are generally written requiring payment in euros or dollars. The buyers of natural gas
from Russia – the US, UN, Australia, Canada, etc. – do not have a big reserve of rubles on hand. If Putin would be successful in forcing these countries to pay in rubles the currency would be in a better situation because the companies would need to buy a lot of rubles. If this happened, the demand for rubles would be more, and the ruble price would naturally arise.
The protectionist measures that were made by the Central Bank of Russia are effectively working as a bridge for the ruble. If Russia would manage to come to a resolution over Ukraine with the release of the sanctions and the reestablishment of trade relations with the West, the ruble might still hold its current value. But, if the measures are withdrawn without some kind of resolution the ruble could collapse, harm the economy, jack up inflation, and cause enormous pain to the Russian people. But in fact, some of the measures will have to be withdrawn eventually. Russian borrowers cannot keep paying more than 20% rates for long. Growth will be stifled and the industry will be destroyed. Russia is the world's biggest exporter of natural gas, but it is not the only source within the market, and buyers of Russian gas could pivot to new suppliers. The US is already sending gas shipments to Europe. The countries that now buy large amounts of Russian gas probably would not need Russia for long. In conclusion, the problem with the Russian currency is not just about Russia, it is about the whole world and if Russia keeps making risky moves, the collapse of its economy can harm many others too.
"Russian Ruble Makes Large Gains in Spite of Sanctions: Are They Working?" AS, https://en.as.com/latest_news/russian-ruble-makes-large-gains-in-spite-of-sanctions-are-they-working-n/