Sunday, October 5, 2014

The Collapse of the Russian Ruble

There has been little attention to this in the western media, but the Russian ruble has suffered a major decline in the last few months.  Earlier this year it was running around 25-30 to the US dollar.  Now the official rate is at 40 and falling, with the rate at 50 to 1 at windows in Moscow.  There is major capital and human flight going on that is attracting increasing comment in Russian sources.

Two pro-Putin economists have subtly noted problems.  In English in Russia Behind the Headlines this past week, Alexander Shokhin, Director of the Union of Industrialists, has argued that the fall of the ruble will have some positive effects, particularly in the agro-industrial sector.  However, he also warns that it will be damaging in the high technology sector, along with the sanctions, most notably in the nanotechnology sector, which was getting off the ground and has now come to a complete halt.

In Russian, and perhaps more importantly, Herman (German) Gref, Chairman and President of Sberbank, the largest bank in Russia and its main holdover from the Soviet era, still partly state-owned and the descendant of the old postal savings bank of the USSR, has just made a widely distributed speech in which he calls for buckling down in the face of the loss of luxury imports, but also warns that the opportunities for import substitution are greatly exaggerated and will take a long time to work in any case.  He also notes the outflow of both skilled people and capital.  Gref reports that the Russian central bank leaders are making desperate efforts to prop up the ruble.

It is unclear the extent to which Putin is following all of this or cares.  To some extent he has used the cutoff of fancy food imports to stimulate nationalism by invoking the WW II model, which apparently many like.  But it may also be that part of the reason the truce in eastern Ukraine is still more or less holding, despite an ongoing battle for control over the Donetsk airport (currently controlled by the Ukrainians), may be that he is in fact aware of the economic impacts on Russia and really does not want things to get worse. 

Barkley Rosser


Noah Smith said...

"Herman (German)" FTW said...


Both are used for him. He is of ethnic German origin, and the name is pronounced as "Herman" in German but "German" in Russian, with a hard "G" on the front. said...


Both are used for him. He is of ethnic German origin, and the name is pronounced as "Herman" in German but "German" in Russian, with a hard "G" on the front.

Cmdt.Ed said...

Very interesting post. Can you post a link to black market info on the ruble? I thought the ruble was relatively freely tradeable. You can buy USD/RUB futures at the CME (


Unknown said...

"but the black market rate is at 50 and falling". Barkley, this is simply nonsense that shows how clueless you're about what's happening in Russia.
There is no such thing (at least not yet before capital controls are introduced) as "black market" for USD.
The actual rate is within ~1 Rub spread vs. the Central Bank official rate (granted, the spread has increased, it used to be .1-.2 roubles).
You can easily check this on any of the websites of many banks in Russia or many web-sites that even aggregate rates for cash foreign exchange offices (e.g. front page).

Also, the exchange rate "Earlier this year" was 33-36 (depending on the month you pick), not the 25-30, which also shows how careless you're about fact-checking.

It pains me to see an economic blog that can't get such easily available numbers straight. said...

Cmdt Ed,

I am sorry I cannot find an internet link. This report on the black market came from good Moscow sources, but I agree that if a currency is freely tradeable, there should not be a black market. It certainly is freely tradeable in most places, but there may be a local phenomenon going on in Moscow or other local markets in Russia right now. If you google "ruble black market" you will get a story in yesterday's Moscow Times reporting on the central bank intervention to prop up the ruble. There are slso stories about the stock market falling below the 1,100 index level. said...


You are right that I misreported the forex rate earlier this year, which fluctuated between 33 and 36 through August, then to make its more recent move downward. said...

An interesting link in English for all of you is . If this link does not work, googling "Putin ruble decline" will get you to it.

In any case, apparently on Oct. 3 or thereaboujts, Putin publicly replied to both Gref and the Minister of Economy, Alexei Ulyukov, both of whom had made critical remarks. Gref was the punchier, making broader criticisms and forecasting a possible repeat of what happened during the Soviet period. Among his choice quotes from this article "Gulags don't motivate people" and "Half the economy is monopolized," forecasting that even if the ruble were to rise, there would be no letup in the current 8% inflation rate.

Putin's response to all this seems to have boiled down to "I guess I should just smile sometimes to show the Devil is not so black as he is painted," which is not much of a response, to put it mildly. said...

Checking my sources I find that the 50 to 1 rates are being found in street window exchange places, easily explained by high fees. They are not black market rates.

I have revised the post to reflect this. Thanks for people pointing out that there is no black market in rubles at this time. said...

I note here on 10/10 that the ruble has continued to fall and that the central bank apparently spent USD 2 billion trying to prop it up two days ago.

The upper band of trading allowed by the central bank is now at 44.9. Also, forex reserves have fallen from USD 480 to 410 over the course of this year.

That is from Reuters, for anybody who wants to know, not just some contacts of mine in Moscow.

IJS Blog said...

Putin seems like the type to stand and fight to the last man on ideals and principles. The question is, will the Russian people live on grain or starve to death in support of their leader. Especially after having had a taste of the "good life".