The value of Russia’s ruble has collapsed to less than 1 cent after the United States and other Western countries applied biting sanctions against the Russian economy.
The ruble was down nearly 10% against the U.S. dollar on Tuesday at 115.68 to the dollar. On Monday, after a weekend filled with painful new sanctions, the Russian currency saw an even more precipitous decline of about 30%. The ruble was at about 84 per dollar late Friday before the harshest financial penalties kicked in.
The ruble is now worth even less than an Afghani, which is the currency of Afghanistan, a failed state that has been overrun and is controlled by Taliban militants.
The currency’s free fall was blunted a bit by the Russian central bank’s decision to hike interest rates aggressively, increasing them from 8.5% to 20% in order to bolster the ruble and prevent a run on the banks. Still, people across Russia have been seen lining up at ATMs to withdraw foreign currencies.
RUSSIA IN ‘TREMENDOUS FINANCIAL DISTRESS’ AS STOCK MARKETS SHUTTERED
The weakening ruble is expected to accelerate inflation and deal a major blow to Russian consumers. The U.S. hopes that the domestic pressure from the sanctions might be enough to convince Russian strongman Vladimir Putin to back away from his invasion of Ukraine.
“It’s going to ripple through their economy really fast,” David Feldman, a professor of economics at the University of William and Mary, told CBS News. “Anything that is imported is going to see the local cost in currency surge. The only way to stop it will be heavy subsidization.”
Last weekend, Western countries announced that select Russian financial institutions would be cut off from the SWIFT system, a move that President Joe Biden had previously backed away from pursuing last week. The Society for Worldwide Interbank Financial Telecommunication, better known as SWIFT, is the main secure messaging system that facilitates cross-border financial transactions and money transfers.
U.S. officials said this week that the action on SWIFT was undertaken in order to send the ruble into a “free fall” and push up the inflationary pressure in Russia with hopes of rattling Putin.
The U.S. and other Western powers additionally restricted the Russian central bank from accessing a large share of its more than $600 billion in foreign currency reserves, which it would have tried to use to prevent the ruble’s depreciation and dampen inflation.
“Our strategy, to put it simply, is to make sure that the Russian economy goes backward as long as President Putin decides to go forward with his invasion of Ukraine,” a White House official said during a Monday phone call.
Steve Hanke, professor of Applied Economics at Johns Hopkins University, predicted on Monday — before the ruble slid even further on Tuesday — that Russia’s inflation is now clocking in at a breathtaking 41.2% yearly rate. He also said that given the currency’s plunge in value, Russia is likely in for a “brutal recession.”
The economic situation in Russia has been so dire that trading at Moscow’s stock exchange has been halted since last week. It is unclear when regulators plan to reopen trading, although officials plan to meet Wednesday morning to decide when that might happen. The day after Russia invaded Ukraine, the MOEX Russia Index plunged as much as 45%.
While governments sanction Russia, private companies have also severed ties to the country.
Shipping giants A.P. Moller-Maersk and the Mediterranean Shipping Company said Tuesday they are suspending container shipping to and from ports in Russia. UPS announced that it has suspended all international shipping services to and from Russia, Ukraine, and Belarus, while FedEx said it was pausing all inbound shipments to Russia and all shipments coming in and out of Ukraine.
Additionally, energy giants BP and Shell both announced that they are divesting their stakes in massive Russian oil companies over the invasion.
While some Russia watchers expected the country’s invasion of Ukraine to be swift and decisive, Russian forces have struggled with their incursion. Ukrainian resistance has been fierce, with videos showing citizens crafting Molotov cocktails and other tools of guerrilla warfare in anticipation of scrappy close-quarter fighting.
Firearms have reportedly been handed out in some Ukrainian cities as average residents gear up to try to battle Russian troops rather than flee their homeland.
“This is going terribly for Vladimir Putin and his forces,” said retired U.S. Army Gen. David Petraeus on Monday. “They designed a flawed concept with multiple axes of advance. They haven’t weighted the main effort into Kyiv, the capital. After all, the main objective is to topple the government and replace President Zelensky with someone who is pro-Russian.”
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Russia and the conflict in Eastern Europe are expected to be a main focus of President Joe Biden’s State of the Union address before a joint session of Congress on Tuesday.
White House press secretary Jen Psaki said that during his speech, Biden will address “the importance of the United States as a leader in the world” right now and the importance of standing up for “global norms” in light of the Russian invasion.
