Ruble money for Russian raw materials and restrictions on capital outflows prevented a fall in the ruble exchange rate last year. It was an undoubted victory for Putin’s team. Higher prices of energy commodities also helped. It turns out that in recent days, this success is not sustainable, and the fall will fall, but after a while. Russia has not won the war, and it is unlikely that it will in the near future.
The ruble’s exchange rate against the dollar is currently sweeping lower, despite rising 0.1 percent on Tuesday. on Monday As high as 97.31 rubles per dollar, which means you pay a little more than one US cent per unit of Russian currency. Such a situation has only happened once before in history, and that was right after the start of Russia’s full-scale aggression against Ukraine, in February and March of last year.
Vladimir Putin assured his administration that a 60 to 80 ruble exchange rate would not harm the economy, so this news should be corrected soon. How can over-opportunity be harmful?
First thing A possible panic by Russians who want to convert rubles into hard currencies as soon as possible, which could drain money out of the banking system. During Prigozhin’s brief coup, they withdrew 100 billion rubles from their accounts. A second issue is the dollar cost of imported goods such as electronics needed to equip the military. The third is the possible reluctance of Russian oil and gas buyers to pay in rubles. They can demand huge discounts because of the risk of currency fluctuations. Finally, the fourth point is the potential problem of the state’s debt.
With the collapse of the currency Few may have been willing to pay interest on Russian bonds denominated in rubles a month ago.. If Russia gets into debt in foreign currencies, it will have to spend more rubles to pay interest on the debt in dollars, euros or Chinese yuan. The yuan has gained 26.5 percent against the ruble this year. Euro 35 percent and dollar 32 percent. Putin’s state budget receives rubles, and must pay loan installments, for example, in dollars or yuan.
Russia’s budget is in trouble
Despite still high foreign exchange and gold reserves, as budget revenues fall and expenditure rises, debt financing will be required sooner or later. In the first half of the year, Russia’s fiscal deficit was 2.6 trillion rubles ($26 billion). Income is down 12 percent. Year over year, and costs increased by 19 percent. Revenues from taxes on oil and gas exports fell by 47 percent. y/y Meanwhile, spending on the military should double from last year. And some have to be financed through foreign currencies. Already every third ruble of budget spending in Russia goes to the military, and this year its spending is expected to be 100 billion US dollars.
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What’s more, Putin is imposing more and more taxes on the economy and printing more and more money, and these are clear signs of an imminent collapse. So far, the Russian economy is doing relatively well under the circumstances. Even oligarch Oleg Deripaska said it was of this type Putin’s slippages hurt the economy more than Western sanctionsWorkers’ strikes are increasing in Russia, and foreign investors are withdrawing.
The hryvnia is also strong
Even though Ukraine is in dire economic shape due to an attack by an aggressive neighbor, the fact that even hryvnia quotes are much better than the ruble can dent Russian self-esteem. In the current year, the Ukrainian currency has strengthened up to 55 percent against the ruble. It is aided by aid funds from Western countries.
On Tuesday the press office of the National Bank of Ukraine (NBU) reported as of August 1 Ukraine’s foreign exchange reserves are almost $41.7 billion. And in July they increased by 6.9 percent. The previous record was in July. The NBU acknowledges that the main source of inflows is funding from international partners.
This is fourteen times less than reserves Russia had $594 billion, according to its central bank on July 28. International reserves, which is 50 billion US dollars. Less than the start of the attack. Russia now has problems with its currency collapse and budget deficit, which is dangerous for the economy, Ukraine is not.
Not only is the hryvnia stronger than the ruble, but so is the zloty. This year, the ruble has fallen by 42.4 percent against our currency. This means that goods exported from Russia may be cheaper, but at the same time, drugs exported there from, for example, Poland will be more expensive. Replacing it with your own production is not so easy.
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