The Russian ruble is the strongest currency in the world in 2022: despite international sanctions, it has appreciated by over 40% against the US dollar thanks to the rise in commodity prices. But all that glitters is not gold: According to many experts, this situation could only be temporary.
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That Russian ruble continues to rise against the dollar and many experts agree that it can safely be called the world’s strongest currency of 2022.Three months after the ruble’s value plummeted due to the harshest economic sanctions imposed on a country in modern history, has fallen, the value has fallen. The Russian currency has done incredible things trend reversal, jumped 40% against the US dollar since January.
“It is a location unusual“, has explained Jeffrey frankel, Professor at the Harvard Kennedy School, as the American CBSNews writes. Normally, a country facing severe sanctions and embroiled in a major military conflict would face investor flight and a constant outflow of capital, leading to a collapse of its currency. But in the case of Russia this is not happening, quite the opposite. The value of the ruble has increased, as has demand.
Rising commodity prices are one of the reasons behind the ruble’s strength
But how did the ruble get so high? The main reason relates to the increase of commodity prices. After Russia invaded Ukraine on February 24, the already high prices of the petroleum he was born in gas they continued to increase, as can also be observed in Italy.
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“Commodity prices are also skyrocketing at the moment, although the volume of Russian exports has fallen due to Russia embargoes and penalties, these will be amply compensated,” he commented Tatyana Orlova, Chief Emerging Market Economist at Oxford, at CBS MoneyWatch. Moscow absorbs nearly $20 billion from energy exports every month. Since the end of March, many foreign buyers have complied with the energy payment request rublethereby increasing the value of the currency.
In addition, western sanctions and the fact that many companies have left the country have also reduced the volume imports. In the first four months of the year, the difference between exports and imports in Russia rose to a record $96 billion. “Even if we see Western companies leaving Russia, they often simply have to sell their shares to local partners. In reality, this does not mean that they are moving large amounts of money out of the country,” the expert explained.
The long-term risks for the Russian economy
All these factors create demand for rubles and increase the value of the currency. However, this does not mean that Russia is immune to a economic catastrophe. According to some experts, it is possible that this strength can be attributed solely to the Russian currency in the interim. In addition, European nations have pledged to cut their Russian gas imports by two-thirds this year, a potentially crippling blow given Russia’s reliance on energy exports.
A sign that Russia’s economy remains under severe pressure is inflation, which is more than twice the rate in the United States. That puts pressure on Russians to get their money out of the country, said Frankel of the Harvard Kennedy School. Another concern for Moscow is that the reduction in imports could lead to it industrial defects, while a drop in foreign investment is likely to hamper the country’s economic growth for years, the Institute of International Finance (IIF) has predicted.
The IIF also predicts that the Russian economy will contract by 15% this year, wiping out more than a decade of economic development. “Export controls, the ‘brain drain’ abroad, Europe’s retreat from energy dependence on Russia and an extraordinarily hostile economic climate will all weigh on it growth of Russia in the coming years,” concluded Elina Ribakova, economist at the IIF.