The exchange rate of the ruble is stably high. Are sanctions ineffective?
Following the Russian invasion of Ukraine, Western countries imposed several packages of sanctions on Russia designed to weaken the Russian economy. The sanctions have banned the import of numerous technological goods to Russia and many companies are voluntarily terminating cooperation with Russia for fear of sanctions or loss of reputation.
One of the most important indicators of the state of an economy is the exchange rate of the national currency. If we look at the exchange rate of the ruble to the euro, a surprising situation emerges: before the war in Ukraine, the ruble rate fluctuated between 85 and 90 rubles per euro; at the beginning of the conflict, the rate dropped sharply to 148 rubles per euro. After that, the rate gradually declined and has been fluctuating around 60 rubles per euro for several months. Looking only at the exchange rate of the ruble, one comes to the absurd conclusion that the Russian economy has been strengthened since the beginning of the war in Ukraine.
However, the exchange rate of a national currency can only be an indicator of the state of the economy if the currency is freely exchangeable. This is not the case in Russia. For example, there are still restrictions on cash withdrawals of dollars and euros in Russia. Most major Russian banks are subject to sanctions in Europe and the United States. In addition, European gas buyers pay for gas under a system where payment in euros or dollars is fully exchanged for rubles by the receiving bank on the Moscow exchange. All these restrictions do not help to ensure that currencies can be freely exchanged.
Even before the war in Ukraine, the Russian economy was commodity-based. Russia sold oil, gas, coal, gold, etc. and received dollars and euros in return. This money was used to buy high-tech products in Europe, the USA and other countries. The sanctions against Russia and the voluntary withdrawal of Western companies from the Russian market mainly affect high-tech goods and equipment. In other words, Russia continues to supply resources and receives euros and dollars in return, but cannot spend them on technology goods because of sanctions and sanction risks.
The structural change of the Russian economy can be understood by looking at the recent balance of imports and exports in Russia: Exports from Western countries to Russia have generally declined sharply, while imports to Western countries from Russia have increased.
The example of Russian-German trade relations illustrates this development: Since the beginning of the war, exports from Germany to Russia have fallen by 51%. In monetary terms, however, exports increased by 38% due to commodity prices. Overall, trade between Russia and Germany fell by only 3%. Other European countries also significantly reduced their deliveries to Russia, but as not all countries were able to quickly dispense with Russian resources, the overall volume of trade did not fall as much or even increased.
Due to the sale of more expensive commodities, Russia has many dollars and euros, but few free rubles to exchange them into. In such a situation, it is not surprising that the ruble appreciates.
The situation is changing rapidly and will develop depending on the further sanctions policy and, above all, on the course of the war in Ukraine and the political course in Russia. However, one thing is certain: it cannot be said that the ruble exchange rate reflects the real state of the Russian economy under the sanctions. The ruble exchange rate mainly reflects the fact that it is much easier to regulate the exchange rate in a semi-closed economy than in a free market. In addition, the ruble exchange rate is based on the fact that it is difficult to find a use for foreign currency within Russia, as imports have declined significantly.