The Ruble- the next currency crisis in waiting

When it comes to currencies the Russian Ruble can certainly move very rapidly at times. In

between 2014 and 2016 the RUB (to use its mnemonic) fell from around 30 to the dollar to

above 85 as a result of the financial crisis there.

However, during 2017 the RUB had been steadily regaining some of that lost ground as the

dollar fell back to around 55 by the beginning of this year. Since March though the RUB has

been gradually weakening again and as I write the USDRUB stands at approximately 66.88.

To get a good idea of how the dollar has traded against the RUB over the past 20 years

please take a look at simple chart of that below.

So, as you can see the RUB is losing ground again and that’s happening at the same time as

oil prices have lifted to above $70 a barrel. Higher oil prices would normally be very

supportive for the RUB, so the latest US sanctions, on up to 700 companies and individuals,

is surely the reason the RUB is slipping backwards again.

We’ve already seen, and I have commented on in earlier articles, emerging market currency

weakness this year with the Turkish Lira and Argentinian Peso being the standout currencies

that have come under the most pressure. Let’s not forget that the RUB is still classed as an

EM currency too.

Seeing as the dollar effectively doubled versus the TRY and the ARS over the past year, were

that to happen to the RUB, then we would be talking about levels well above 100. Certainly,

if a full blown crisis were to unfold, then I don’t think that such an outlandish target either.

Now, the reason I am writing about this today is that according to some newswire/social

media reports, the US government is looking at what additional sanctions it can impose on

Russia. These apparently could entail the use of ‘severe’ financial measures.

Now that may not rest well with some US allies, but it sure will with the UK who are keen to

see Russia punished in some way for its blatant breach of international protocol regarding

their use of chemical weapons on British sovereign territory. This is a big deal and can you

imagine the US reaction to such an incident if it took place on their turf?

As we know, the cold war was not settled by armed conflict; it was won with hard cash or in

Russia’s case, the lack of it. I won’t seek to downplay the actions of Gorbachev in helping to

bring that to a peaceful conclusion because it would be extremely disingenuous to do so,

but essentially it was money that won the cold war.

So, what would those ‘severe’ financial sanctions actually entail? And would they work?

Well, it could mean that holding Russian investments of any kind might incur some sort of

duty or levy so as to encourage liquidation. Certainly, if not on existing holdings, which may

prove counterproductive, then surely a total ban on any kind of new financial investment,

trade or finance.

However, the biggest threat to the RUB would be any measures taken against Russian

sovereign debt. If the rumours about this are true, then it is potentially a very big deal.

Bottom line here; is that if Russian debt does get truly crunched, then the RUB will go the

same way and that all time dollar high at 85.95 may find itself not being the all time high