Rouble Trouble

Note kindly translated by Anne-Marie de Grazia

The rouble has weakened considerably since the end of October, before picking up somewhat. Clearly, there are very strong disturbances at work on the currency markets. Russian authorities imply speculations of a political origin to explain the recent currency movements. But one must point out that « objective » factors are also at work. We must therefore try to understand the nature of the events taking place on the Russian exchange markets and their possible consequences on the real economy, in the short and middle term.

A generalized drop of the Rouble.

The drop in the rouble has been very noticeable since the beginning of September and has accelerated during October and the first days of November. But this drop in the Rouble also expresses the relative strengths of some other currencies. Measuring the evolution in the exchange rates since the beginning of 2014 allows to evaluate this.

Chart 1

Evolution of the exchange rate in percentage in comparison with the rate of 12/31/2013

(Reversed scale)

 A - ChgRate

We notice that the movement of drop of the rouble unfolds in very different ways if one takes into consideration 5 periods which can be clearly distinguished on Chart 1.

  1. The first period covers the month of January 2014. In this case, the drop in the rouble is in keeping with a change in policy of the Central Bank of Russia which stopped to make out of the level of the exchange rate a goal of political economy. The Rouble depreciates by 5% to 9% according to the currencies considered.
  2. The second period goes from the beginning of February to March 15 and fits in with the tensions occurring in Ukraine, and with the declaration of independence of Crimea asking for – and obtaining – its unification with Russia. The depreciation continues, then combining economic as well as political causes.
  3. Beginning March 15th, and until July 9th, the movement reverses itself. But it reverses itself more rapidly in the case of the exchange rate against the Dollar or the Euro or the Swiss Franc, than against the Yen, the Pound Sterling or the Korean Won. In the case of the first three currencies, the exchange rate of the Rouble returns to its level of January 22. But then there occurs a gap of 3% to 5% between the value of first three currencies and the last three. This shows that phenomena of differentiation are at work between currencies and that the movements of the Rouble have, in fact, reverted to normal.
  4. A fourth period corresponds to the events of the beginning of Summer, such as the destruction of the Boeing of Korean Air Line flight MH17, a destruction which is still arousing controversies, as well as the failure of the offensive of the Kiev forces and the rout of the latter at the end of August and beginning of September. This period goes therefore from July 10th to October 1st. The Rouble starts depreciating, but tends to depreciate much faster against the Dollar than against the other currencies, particularly against the Euro and the Swiss Franc, but also the Japanese Yen.
  5. Finally, we have the last period, from October 1st to the present, characterized by an accelerated depreciation of the Rouble, but also a strong movement of differentiation between the Dollar and the Pound Sterling, and the Pound Sterling on the one hand, and the Euro, the Swiss Franc and the Yen.

 However, since the last week it seems that we are witnessing a kind of stabilization of the exchange rate.


Evolution of parities, in comparison with those of December 31, 2013

Roubles for 1 Dollar

Roubles for 1 Euro

Roubles for 100JPY

Roubles for 1000 KRW

Roubles for 1 Fr Suisse

Roubles for 1 BPD




































Source : Central Bank of Russia

We note therefore that most of the depreciation of the Rouble played itself out since the end of September, but that the depreciation ALSO reflects differences in appreciation between each of the various currencies. The loss has been very strong against the Dollar since early September, but it is distinctly lower against the Pound, the Swiss Franc and the Euro, and it is even more moderate against the Yen.

Table 2

Gap between parities according to the different periods

Roubles for 1 Dollar

Roubles for 1 Euro

Roubles for 100JPY

Roubles for 1000 KRW

Roubles for 1 Fr Suisse

Roubles for 1 BPD

31/12/ 2013 – 29/01/2014







29/01/2014 – 15/03/2014







15/03/2014 – 09/07/2014







09/07/2014 – 01/10/2014







01/10/2014 – 12/11/2014







09/07/2014 – 12/11/2014














This goes to comfort the thesis according to which there exists indeed a « peculiarity » of the exchange rate of the Rouble against the Dollar, whether one considers this peculiarity to be economic or political. Of course, the Dollar appreciated against the Euro in the same period. The Euro depreciated by -8,3% in relation to the American currency in the period of July 9th 2014 to November 12th 2014. Had the parity remained constant, the Euro would have appreciated 31% against the Rouble, which leaves an unexplained margin of 4% against the  Dollar. This margin, low in appearance, is in reality considerable when one knows the practices of the arbitrators on the currencies market. So that there exists indeed an “anomaly.” This latter seems to have been concentrated on evolutions since September, even since July. One can then emit several hypotheses, which are not necessarily contradictory:

  • (a)   A true problem connected with the Dollar, which is the result of American sanctions, and particularly of the implicit threats weighing since the BNP-Paribas affair on non-residents effecting operations in Dollars with Russia. This could explain movements of exit of capitals linked to foreign operators (mostly American) who liquidated their positions on the Moscow stock exchange in fear of possible penalties.
  • (b)   But one must also take into account the fact that the Dollar is far more used in the movements of international speculation. One may therefore consider that English and American speculators have put under attack more especially the Rouble-Dollar parity. This is the implicit hypothesis raised by Russian authorities. Repeated accusations against banks for manipulations on the exchange market lend some credit to this explanation. [1].
  • (c)    One can also suppose that private Russian banks have speculated AGAINST their own currency, finding there an easy way to make money. The BCR’s decision to let the Rouble “float,” and to intervene without warning was also aimed at this form of speculation.

The hypothesis is often advanced of a massive exit of capitals. But exit movements can also be perfectly normal, for instance, when Russian companies acquire foreign companies. In fact, « flights » in the proper sense (i.e. illegal) have been reduced and exits by way of de-investments seem to have stopped in the Summer of 2014. We do not have at our disposal precise data distinguishing operations carried out by Russians buying assets outside of Russia and non-residents selling Russian assets. But, when comparing the amount of buying and selling operations and the variation in foreign debt, one is nevertheless able to draw some conclusions.

Chart 2

Capital flows in Billions USD A - BP1

One can see a very large movement of exit at the beginning of 2013. But it matches an increase in debt that is just a large. Clearly, in this case, it is the buying of foreign companies which explains these strong exits of capitals. Russian companies realized “external growth.” On the other hand, from October 2013 to May 2014, we have exits of capital (granted that they are less considerable) but very weak fluctuations in foreign debt. It is clear that in this case it is due to the non-residents having liquidated their positions in Russia, and one can see that this movement started before there were explicit tensions between Russia and the United States about Ukraine. In other words, one may ask the question if the United States did not begin trying to destabilize the Russian power even before February 2014. This is an important point, and it could explain the brutality of the subsequent reactions of Russia.

Chart 3

Exit of capitals from Russia and loss of reserves

 A - BdP2 Fuite

We notice indeed considerable exits of capitals, but the latter seem to have reached their maximum last Spring, and they do not seem to be able to explain the movements in the exchange rates of the Rouble which one has noticed since October 2014. These movements are therefore produced indeed, as suggested by the Russian government, by strong movements of speculation, probably with a political intent.

II. The causes of recent evolutions.

However, the recent evolutions also have “real” causes, such as the drop in the prices of oil and gas. One must realize that if the production of gas and oil makes up only 11% of the GDP of Russia, it represents between 45% and 55% of the fiscal revenues of the State. A drop in oil and gas prices would therefore have considerable consequences on the budgetary balance of the government. Russian authorities are now accusing fairly overtly Saudi Arabia to provoke a drop in prices and to carry on, on “order of the United States,” an “economic war” against Russia. It is true that one noted, during these past months, a drop from 110 USD to 84 USD on the barrel of oil. This accusation of the Russian government seems to be well-founded in part, but only in part, as it is clear that the world economic situation does not lend itself to high prices.

Still, this drop in prices can be compensated by the depreciation of the Rouble. Indeed, taxes on exports of oil and gas are calculated in dollars. If the price in dollars drops, tax revenues drop as well. But if the Rouble depreciates against the Dollar, the revenues in Rouble will increase. And the budget of Russia is calculated in Rouble, not in Dollars. Let’s also notice that a depreciation of the Rouble guarantees the income (in Roubles) and the profits of Russian companies. If the depreciation is considerable, operating costs will decrease faster than the revenue in Dollars, and the operating margins of companies will increase. In fact, one may ask if the Russian government did not anticipate a potential crisis with the United States as early as end 2013, which could explain the reversal in the policy of the Central Bank which stopped progressively to sustain the exchange rate of the Rouble as early as in January 2014. In fact, the change in policy of the Central Bank, officially explained by a will to better fight inflation, was not linked to what we have pointed out earlier, namely, a de-investment of American financial operators out of Russia. If this should be confirmed, it would mean that the relations between Russia and the United States started to degrade silently, but irremediably, as early as the end of 2013.

Finally, we must consider that a strong depreciation of the Rouble plays the role of a protection measure for Russian industries and makes their products more competitive, on the domestic market as well as on foreign markets. From this point of view, one can suppose that the Russian government has not been much saddened by the depreciation of the Rouble, to the extent that it went the way of its own will to re-industralize Russia.

III. The effects on the real economy.

The depreciation of the Rouble also acts as a protectionist measure, protecting the domestic market as well as favoring exports. The trade balance remains at 10 billion dollars per month, and it seems that it tended to increase since September because of the even stronger depreciation of the Rouble. In fact, imports have contracted in comparison with 2013.

Chart 4

Imports and exports in billion Dollars (monthly data)

 A - ComExt

From this point of view, the situation of Russia appears to be extremely healthy. The foreign exchange reserves of the RCB, which amount at present to 450 billion dollars, represent more than 12 months of imports in goods and services. Russia is for time being shielded from a deterioration of its international financial situation.

Chart 5

A - ARéserves 

However, two points are clearly problematic at present and will need to be specifically addressed by the Russian authorities.

  1. 1.    Inflation. It increases naturally together with the depreciation of the Rouble. It should reach, because of the depreciation of the Rouble, around 8,2% – 8,5% in 2014. This signals a strong increase in comparison to the rate of 2013 (6,3%), even if a rate of 8,2% is by no means uncontrollable and does not create a long-term macroeconomic problem for the government.
  2. 2.    Investments. Investments are, for the time being, directly penalized by the interest rates policy of the Central Bank, which raised the day to day cost of money to 9.5% per year, a policy which is coherent with the decision to let the Rouble float. Consequently, there are three possible solutions: (a) setting up separate circuits for investments, largely financed by the public sector. (b) Setting up a control of capitals which would allow to decrease interest rates internally. (c ) Setting up a financial circuit backed against the Yuan, which would imply considerable investments by China in Russia and which would create a political problem as far as relations between these two countries are concerned, by making Russia dependent on its partner for long years to come.

At present, the first solution is by far the most probable, maybe articulated with the development of a market of an investment Yuan, remaining relatively limited. But if problems persist until the end of the year, one cannot exclude the second solution, that is, a control of capitals.





Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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