Putin’s sanctions and countermeasures
On March 7, the ruble crossed 160 against the dollar, halving its value compared to what it was before the Russian invasion of Ukraine: the cause is the harsh penalties imposed on part of Russia’s financial system and the country’s central bank. Since that day, however, much of the depreciation has been reabsorbed.
The Russian government continued to take countermeasures 5. March, with an obligation for exporters to exchange 80 percent of foreign currency earnings in the domestic market for rubles in the previous three days, and with precise quantitative restrictions imposed on all residents for the withdrawal and export of foreign currency from Russia, which had a significant impact. With Moscow he sidestepped the troubles of the Russian central bank in defending the exchange rate because it could not use the frozen foreign currency deposits in the European, American and Swiss markets. Exporters were forced to take over the central bank, supplying importers through the Russian financial market with the foreign currency they had to continue sourcing abroad to counter the pressure to hoard, which creates scarcity, and appreciate its value.
also read
Gas, Messori: “The request to pay in rubles? A way to humiliate the EU or create the casus belli. Moscow could also accept Bitcoin
The same mechanism works for the settlement of all foreign accounts, not only for the financing of imports, but also for the payment of coupons, interest and the repayment of loans approved under sanctions, such as paying interest in dollars of the national debt in the last Week. With the passage of time and the net inflow of foreign exchange (Russia remains a current account surplus economy and thus receives net inflows of foreign exchange), the stock market reacts to the function imposed on exporters and the capital blockade. there foreign currency it is becoming increasingly scarce on the Russian market, and as a result, the exchange rate of the ruble has regained value.
the March 23rd Then came the Russian Prime Minister’s decision to let “hostile customers pay for Russian gas supplies in rubles.
A flow of foreign exchange to Russia
What does this decision add to what happened before? Quantitatively not much, of money supply and demand, except that 100 percent of foreign currency would be converted into rubles instead of 80 percent (a goal that could already have been achieved by setting the overall conversion obligation). If earlier Russian exporters received euros from gas sales and were obliged to exchange them for the ruble (giving euros to importers or the Central Bank or other Russian financial institutions), now they will receive rubles directly.
To understand the implications, we need to think in qualitative terms, based on the subjects to whom the conversion obligation would be imposed: the companies importing gas. For example, with a little conspiracy, we might think that Putin doesn’t trust them that much. Any elusive behavior on the part of companies would reduce the foreign currency entering Russia: forcing foreign companies to buy rubles will cure the situation.
also read
War Russia Ukraine, Moscow Stock Exchange closes up 4.3%. White House: “Reopening is a Farce”
However, when we look at the economics, two additional considerations must be made. The first concerns how the ruble market might expand the last train. The exchange of the ruble against the main western currencies would no longer be limited to the Russian market, but would also be reactivated on the foreign markets and the exchange rate risk, which is now very small for western importers (since they all gas in euros or US dollars) could increase and lead to a demand for hedging instruments. In a larger market, ruble liquidity is necessarily provided by Russian banks, which receive it back a bigger role in the financial system which would protect them from further sanctions.
This leads to the second consideration, the sanctions, which are perhaps the main reason behind Moscow’s new move. The exchange rate of the ruble is supported by exporters’ repatriation of foreign currencies. THE returns are permissible for precise exclusions from sanctions. If the exclusions were lifted and Russian banks were unable to trade and repatriate exporters’ foreign currency, Russian importers would lose. access to liquidity come from Western markets and stabilization of the exchange rate would become more complicated.
At best, we Westerners could continue to import gas, paying for it in dollars and euros, but that consideration would no longer be available to the Russian economy to finance imports. However, with the decision of March 23, those wishing to continue importing gas will have to go directly to Russian banks, which are the only ones capable of putting rubles on the market flow in Russia deposits in foreign currency in order to exchange them for payment in the local currency. The flow of foreign exchange would continue uninterrupted until the West decides to permanently stop buying gas and oil from Russia. Easier said than done.