The ruble is worth half – half – of what it was worth in July. The simple reason, of course, is that people don’t want the ruble.
“People aren’t investing in Russia,” says Alexander Kliment, director of Russia research at the Eurasia Group. “That was the problem before the Ukraine crisis, and it’s been exacerbated by the sanctions and what’s followed.”
It is also the reason the ruble’s fall isn’t expected to cause major economic havoc outside Russia.
“Because of the sanctions there’s been an effort on the part of a lot of those companies in neighboring countries and Europe to reduce their exposure in Russia, says Jeff Mankoff, deputy director of the Russia and Eurasia Program at the Center for Strategic and International Studies in Washington, D.C.
Inside Russia is a different story. Russia’s imports are now twice as expensive as they were in July.
“Not only is Russia’s economy contracting, it’s also experiencing inflation,” says Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “This is a horrible mix – if you stimulate the economy you fuel inflation.”
Russia’s foreign debts are also more burdensome.
“Russia has about $680 billion of borrowing it did overseas,” Chandler says, “about two thirds of it is denominated in U.S. dollars,” which are now more expensive.
Kliment and other analysts say they don’t see widespread default, yet.
“A lot of that corporate debt is held by state companies … so if they were to get into trouble the state would probably bail them out,” Kliment says.
While the consequences of Russia’s currency route inside the country are economic, outside they are geopolitical.
“The economic pressure that Russia is experiencing right now is being framed in Russia as part of a western campaign to weaken Russia,” says Kliment. President Vladimir Putin’s popularity – which is around 90 percnet – isn’t counted in dollars or rubles. “It’s based almost entirely on a very nationalistic tough guy image.”
So how will that tough guy respond when economically cornered?
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