“Don’t worry about it. You get paid in rubles, not dollars.”
That was Dmitry Peskov’s answer to an inquisitive journalist who wondered whether Russians should be worried about their currency, which depreciated sharply mid-week and is on track for a fourth consecutive month of losses against… well, against real money.
Although the currency managed to find its footing on Thursday, it’s the weakest since Vladimir Putin’s fateful decision to invade his neighbor three years ago this coming February.
As the simple figure shows, the situation just took a sharp turn for the worse, in what long-time EM watcher Tim Ash called “a proper currency crisis in the making.”
With the usual apologies to a Russian populace whose fault this most assuredly isn’t: Here’s hoping. Currency crises present a significant and meaningful threat to autocratic regimes. When people think the money’s not worth anything, that’s trouble.
For the duration of the war, the Russian economy proved far more resilient than anyone in the West imagined it might. The Kremlin’s global network of sycophants, both witting and otherwise, delighted in that, talking up the many virtues of what they imagined was economic self-sufficiency.
The idea that you can run an economy, even one as small as Russia’s, completely cut off from hard currency, Western imports and the global banking system, in perpetuity, with no impact on the populace, is, was and will forever be, ridiculous. And self-evidently so. Even if it wasn’t, why? Why would you want to do that if you didn’t have to? Hold that thought.
It’s unfortunate, to put it mildly, that many Westerners were by 2022 so swept up in what they didn’t (and still don’t) realize is Kremlin counter-narrative, that they couldn’t recognize the sheer, blatant, tragic absurdity of what Putin did: He embarked on an unprovoked, viking-style conquest of another territory, characterized in the early stages by indiscriminate rape and plunder of the locals, thereby voluntarily cutting his own country off from a global community which, very much contrary to Russia’s propaganda narrative, went to absurd lengths over the years to look past Putin’s murderous tendencies in the interest of keeping Russia in the proverbial fold.
For three years, Putin ran a war-time economy designed specifically to insulate everyday Russians from the realities of the conflict, and while it’d be too much to say it “worked like a charm,” it did work. Sort of. He was right to assume that the commodities shock would exacerbate the West’s inflation woes, and he was correct to suspect Russia would still be able to sell its gas and oil to somebody, somewhere and also that it’d be a while before Europe was able to wean itself completely. But he overestimated the Russian military’s non-nuclear capabilities, and underestimated NATO’s willingness to prop up Kyiv, so here we are, headed into 2025 with millions dead in a bloody stalemate and Russia clinging to a slight edge, which’ll probably be enough to secure for Putin the Donbas and Crimea now that American voters have decided to re-install Donald Trump in the White House.
Whatever happens, don’t delude yourself: Russia’s war-time economy was a Potemkin village, and were it not for Xi Jinping and Elvira Nabiullina, it might’ve imploded. Remember, Putin’s effectively holding one of the world’s most capable central bankers hostage. Nabiullina tried to resign (allegedly) in the earliest days of the war, but wasn’t allowed to leave her post. It was Nabiullina who kept the train on the tracks in 2022, and she’s still there, presiding these days over a policy rate north of 20%.
Look at that chart. Does that look like success to you? Inflation’s damn near 10% and the policy rate’s more than double that, at 21%, a record high. I hope this goes without saying, but just in case: A 21% policy rate is indicative of a crisis. For all her adeptness, Nabiullina hasn’t hit the mark on the inflation target since the war started, and local inflation expectations are 13%.
Last month, Nabiullina said inflation probably won’t return to target until 2026. “That doesn’t mean rate hikes don’t work,” she told the Russian media. “Without them, inflation would be even higher.” There you go. It doesn’t get much clearer than that.
There’s no “miracle” here, folks. Russia rebounded from a short-lived recession by putting the economy on a run-it-hot war footing. That’s not some stroke of genius on Putin’s part. Wars tend to boost domestic economic activity until they (the wars) come home, either figuratively or literally. The only way to avoid that reckoning is to win. The Russian budget for 2025 suggests Putin’s going to spend more on the war (“defense”) than on healthcare, education and what the Kremlin calls “social policy,” combined.
Even if that’s sustainable (it’s not), it comes back to the same question(s): Why? Why do this to your country? Why would you throw everything away on this quixotic lunatic mission, which is costing Russia God only knows how many of its young men every day? What’s going to happen when this is over and military spending craters? Will there be anything left of the civilian economy? How long can you go with no access to hard currency and cut off from key imports? Do the Russian people not have any claim on the natural resources the price for which is artificially suppressed because Putin took it upon himself to start a war, thereby turning the nation’s oil and gas into quasi-contraband? That oil and gas is Russia’s not Putin’s. How beholden is Russia now to Xi Jinping? Was there a referendum on that? Do everyday Russians want to be subjects — vassals — of a Chinese emperor? Do everyday Russians want to pay to clothe and feed the tens of thousands of North Korean soldiers Putin’s hosting? And on and on.
To reiterate: This is so self-evidently f–ked up, that you’re well within your rights to question anyone who suggests otherwise. And by “question” I mean ask after the motives of any Westerners — journalists, bloggers, politicians and so on — suggesting this is defensible, desirable or anything other than the absurd tragedy that it is. I, for one, hope the Russian economy collapses so that the Russian people have no choice but to toss out the tsar.
Of course, that’s unlikely to happen now. Putin only needs to last another two months (less actually) to be guaranteed sanctions relief and, in all likelihood, US recognition of the territory he stole, under a new US administration that’ll make normalizing relations with Moscow a top priority.
I guess we will find out whether Ukraine is willing to agree to Putin’s terms: never join NATO and the EU, never rearm, and agree to deed its eastern cities and provinces to Russia. There’s a chance they won’t, realizing those are just openers from Putin. That domination of its media, military, trade will follow. That enough of Europe—Sweden, Norway, Finland, Denmark, Poland, Britain etc will increase support enough to delay Russia long enough for Russia and its economy to wear down to a much lower pace of attack. If that were to happen— no deal—would the US end arms support, relieve sanctions on Russia anyway? Won’t be a deal if Ukraine, its military and people are willing to fight on without US arms support, especially given Russia’s condition as you have set out, if the US and Europe continue sanctions.
Recent opinion polls in Ukaine suggest that just over 50% of the populace is now willing to ceed territory in exchange for peace. Just a poll subject to all sorts of questioning, but the war ans losses of Ukranian men is not a recipee for a willingness to continue the fight without US and other western aid.
All those lives on both sides lost for nothing.
Your presumption they will lose ‘other western’ aid is not accepted by some who have given lots.
Sad part is they know they will not enjoy peace for long. Vladimir has a strong track record of performing the double cross.
So maybe if they thought they could have peace they would give up territory?
Dead on.
That ruble chart looks like it’s a couple limit downs away from pitchforks…my question is when is zelensky going to try to hit oil infrastructure.
Ukraine’s drone hit so much energy infrastucture it is almost not news anymore. Many refineries have been hit, so much that markets have been affected. The refineries in the east however have not been affected. Ukraine’s drones cannot fly that far.
The ruble chart may force Kremlin’s hand to either turn on Vladimir or lose it with the Russian people. The falling ruble is impossible to propagandize away. Dictators have mostly been deposed over foreign wars that go bad. Ukraine is touted by Vladimir as a domestic war, but the population knows better. Vladimir is aware of the history of dictators deposed by their population because of failed foreign wars.
It seems from my chair that Vladimir’s best hope is Donnie and his select team of misfits. Remains to be seen if Thune can muster one for the country and tune Donnie out.
I wonder how much a weaker ruble raises consumer prices for everyday goods? Not for energy where prices can be set by fiat. I have no idea how much food Russia needs to import. Is it driving up the price of staples?
But certainly the weaker ruble for imported luxury goods, which might aggravate the wealthy who actually matter if Putin is to be toppled. \
Sadly, the impact of the falling Iranian Rial suggests that a collapsing currency may take a lot longer than many of us hope to trigger a regime change. In either country.
I believe currency disruptions have resulted in regime change. The inflation caused by the collapsing ruble will impact every day prices. It also impacts availability. The situation is not looking good for anyone in Russia. The problem is that Putin is now cornered, a cornered animal can be dangerous indeed, Putin is that animal.
All that said Russia has tools available most countries do not. So it is not the same sort of pain others might feel. Russia is culturally a stoic, to grin and bear it is a normal response in Russia.
Quibbling out of curiosity. What percentage of consumer goods in Russia are imported? i.e. what is the transmission mechanism from a weaker ruble to the cost of living in that country? Are they somewhat self-sufficient or will prices for everyday goods soar as the currency weakens?
Perhaps the yuan/ruble and ruble/rupee rates are more important when it comes to consumer goods? In any case, it sure looks like we will find out soon enough.
Late last week the South China Morning Post in HK ran a story suggesting that goods exporters in the PRC were reducing shipments to Russian buyers who paid in rubles. Private companies, so far.
But didn’t Tuckems go to a Russian grocery store filled with the finest produce known to man a few months ago. Who are you going to believe a man’s man, who is possibly possessed by a demon, like Carlson or your squiggly lines?
I wonder if you are right? About Trump that is, not Putin. I have followed currencies and global capital flows since the start of the multi-year Bretton Woods collapse in 1970 to 1981. Russia is collapsing because Trump has won AND because he plans to totally dominate the global natural gas market. Norway is number one in selling to the EU at 31% and the US (19%) is number two. Russia is at 14% and the EU is moving to force Russia lower. The EU and a warm winter would justify a collapsing ruble and Putin settling for a lousy deal.