The outbreak of war in Ukraine was accompanied by a historic devaluation of the ruble against the dollar of more than 76% between February 25 and March 7, 2022. This decline is mainly due to the West's sanctions against Russia, in particular the freezing of the exchange rate on its international reserves, preventing the Russian Central Bank from supporting its currency.
This measure is in addition to other financial sanctions aimed at:
to deprive Russia of access to the financial markets of the European Union (EU) in order to hinder the operations of Russian state-owned companies; Exclusion of major Russian banks from the Swift system (“Society for Worldwide Interbank Financial Telecommunication”), the world's leading financial messaging system.
The second phase of a sharp devaluation of the ruble by almost 20% occurred at the end of 2022 as a result of the energy sanctions adopted by the European Council in June in its sixth package of measures.
Despite these periods of strong devaluation, the ruble remained at a high level against the dollar, reaching values higher than before the war. For what?
A record trade surplus in 2022
Unable to support its foreign reserves, Russia has taken a number of measures to limit capital outflows. It required its export companies to convert most of their foreign exchange earnings into rubles, banned foreign currency loans and bank transfers from Russian citizens abroad, and required allied countries to pay for their purchases of Russian gas in rubles.
These measures made it possible to support demand for rubles and thereby limit the fall of the Russian currency against the dollar in 2022. This meant that less than two months after the invasion of Ukraine, it returned to its pre-war level, reflecting the costs of the financial repression of national savers.
Russia also recorded a record trade surplus in 2022. Moscow cannot spend the dollars accumulated due to sanctions, but continues to export its hydrocarbons, increasing demand for the Russian currency has strengthened the ruble. The opening of accounts by several European companies at GazpromBank to convert euros into rubles following the Kremlin's decision to settle Russian gas imports in rubles also helped support the Russian currency.
In 2014, the ruble crashed in July, five months after the annexation of Crimea.
If these factors allowed the Russian currency to be supported for much of 2022 despite the retaliatory measures, the ruble depreciated from December 2022 after the entry into force of the sanctions imposed in June 2022. The application of sanctions – coupled with the decline in international oil and gas prices – have therefore depressed the value of the ruble.
Although the devaluation of the ruble seems significant, its magnitude is still significantly smaller than in 2014. How can such a situation be explained?
A late reaction in 2014
In 2014, the ruble crashed in July, five months after the annexation of Crimea. While the Russian currency returned to its pre-war values very quickly in 2022, this was not the case in 2014 as the ruble never returned to pre-invasion levels of Crimea. The ruble's delayed reaction of several months compared to the time of the annexation of Crimea is due in particular to the fact that the financial sanctions were imposed late, unlike in the current Ukraine crisis, where the retaliatory measures were decided after the end of the war.
Even if the financial sanctions imposed in July 2014 contributed to the devaluation of the ruble in the same month, they are unlikely to be the main explanatory factor, as the main cause lies on the oil market side. In fact, unlike at the start of the Russo-Ukrainian conflict, the price of crude oil has been in a downward trend, with the price of a barrel falling by more than 50% in seven months from July 2014. .
Since exports of hydrocarbons and derived products accounted for half of government revenue and more than 70% of Russian exports at the time, this drop in oil prices is clearly a key explanatory factor for the very sharp devaluation of the ruble.
In 2022, Russia was preparing for sanctions
In addition, unlike 2014, Russia had time to prepare for sanctions in 2022, as it suffered them after the annexation of Crimea, which explains the ruble's rapid return to its current pre-war level. An example of this “readiness” can be the development of the reserves of the Central Bank of Russia and their composition. While 6.4% of reserves were held in the United States in 2021, this percentage was around 26% in 2014.
Since the sanctions associated with the annexation of Crimea, Moscow has not only accumulated significant reserves, but also diversified its foreign assets and transferred a significant part of its reserves into the Chinese yuan and gold – the share of reserves held in gold is 21.5% in Year 2021 compared to 13% in 2014.
The diversification of international reserves and the de-dollarization of the Russian economy in 2022
This dynamic highlights the fact that after the 2014 experience, the Russian central bank prepared for sanctions by protecting itself from future restrictions on its foreign exchange reserves by de-dollarizing its economy.
Overall, if Russia was not prepared for sanctions in 2014, this will not be the case in 2022 either. However, while the fall of the ruble in 2014 can be explained primarily by the situation on the oil market, the current fall is mainly due to sanctions taken against Russia. The sharp devaluation of the Russian currency against the dollar by around 23% in 2023 shows that the effects of Western sanctions are clearly noticeable, particularly due to the financial burden of the war in conjunction with the decline in revenue. Energy .
This post is published in collaboration with Printemps de l'Économie, a series of conference debates taking place from Tuesday 2 April to Friday 5 April at the Economic, Social and Environmental Council (Cese) in Paris. Here you can find the full program of the 2024 edition entitled “Which Europe in a fragmented world?”
Valérie Mignon is Professor of Economics, Researcher at ÉconomiX-CNRS and Scientific Advisor to CEPII at the University of Paris Nanterre–Université Paris Lumières.
This article is republished from The Conversation under a Creative Commons license. To read the original article.
