The Collapse Of The Ruble And Its Ripple Effects

The Russian ruble had almost literally turned to rubble. Geopolitical crises, coupled with the accelerated fall in the second half of 2014, have crushed the ruble. Russia’s central bank has taken numerous steps to stabilize the plunging currency but have thus far failed in their efforts.

The ruble’s collapse has taken a heavy toll on the Russian economy, and the ripple effect has been felt across several industries.

At the start of 2014, you could exchange one US dollar for 33 Russian rubles, but with 2014 drawing to a close, the same amount would net you about 79 rubles. The ruble also saw its biggest single-day decline.

The West was rejoicing in the fact that its sanctions have managed to corner the defiant Russian president Vladimir Putin. The Russian economy was also combating plunging oil prices. Oil and gas were the main exports of Russia, accounting for about 75% of its total exports. Oil and gas exports make up more than 50% of Russia’s budget revenues. The impact of falling oil prices has been felt across the entire Russian economy, and earlier Vladimir Putin announced a 5% budget reduction for the industry in 2015-2017.

The Russian economy was also burdened with payments worth $600 billion, which Russian banks and companies had to pay off to foreign creditors. With the ruble plummeting, these payments were becoming heavier by the day. Another troubling fact was that borrowers cannot refinance their debt with European and American banks due to Western sanctions.

The central bank of Russia hiked its interest rates 6.5 percentage points to 17%, in the hope of giving the currency a lift. The rebound was short-lived, however, and the currency collapsed in the subsequent hours.

The central bank expected the interest rate hike will help the economy support the ruble, and help fight inflation, which was expected to reach 10% by the end of the 2014. The falling ruble has been the major reason behind the country’s high inflation, as Russia imports almost everything except commodities.

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