Russian invasion of Ukraine

Scottyboi said:
TROUBLE AHEAD
Posted on November 28, 2024 by The Analyst
Yesterday after a frenetic day of ski slope angled declines in value, the Russian Government ordered all trading in the country’s currency suspended as it breached the 110R to $1 USD. That’s a 30% collapse in value since August 30th.

What does it mean?

It’s a pretty bleak outlook. Firstly it means the country ran out of currency to buy up roubles and support their value. The faster the devaluation, (10% in two days) the more currency it would have taken and they just don’t have it.

A fall of 10% in any currency value in the space of 48 hours would have had any central bank governor panicked to the point of volunteering to jump out of hospital window in Moscow rather than wait to be pushed. The scale of this cannot be underestimated. Its a very big problem.

Suspending trading is the last resort. It literally means there was nothing else left to do, the usual method of raising interest rates to attract buyers back to the currency would have fallen on dry ground, because the core of the rouble’s problem is nobody wants it.

The strength of your national currency is a direct signal that those you trade with have confidence in it, that they want to trade in it and will buy it to trade with using their own.

Russian roubles aren’t even wanted by China or India, Russia’s biggest trading partners. neither of them buy anything other than commodities from Russia and they won’t pay in roubles. They flatly refuse. India pays in a complex Emirati dirham and Rupee mix – which Russia hates as it has no use for Rupees. China will only take Yuan and pay in Yuan. With neither of its biggest oil traders buying roubles to pay in, its value has plunged.

INFLATION WILL SKYROCKET

One of the reasons we know inflation in Russia is way higher than the fake government figure of around 9%, is that the currency has devalued by 30%. That means everything imported into Russia from finished oil products to clothing and food, is costing it 30% more and there’s no way that’s not being passed on to customers.

A frozen value of the rouble might prevent what was inevitable and already starting to happen – a run on the banks as people grabbed their cash out of their accounts before it became worthless, so they could rapidly spend it before it meant nothing.

However a frozen value isn’t going to restore any confidence in the currency. everyone knows that as soon as the rouble trades again it will dive in value, so I doubt it will ever be allowed to trade again, not until the war is over at the earliest, and even then maybe not that fast.

BUT IT MAKES EXPORTS CHEAPER AND MORE DESIRABLE?

What exports? Name anything that Russia is exporting anywhere that’s not a commodity? What finished industrial goods or products is Russia selling that anyone would buy where this would make a difference even if they were 30% cheaper?

THE DOLLAR REIGNS SUPREME

The worst part of this for Russia is that what it does export, grain, oil and gas, is priced in USD. It’s often only traded in USD, maybe Euros, and a small amount in Yuan. In essence 90% of world trade is in those currencies – 83% in USD. So the oil especially, is only traded and measured in USD, meaning its not having any benefit for Russia because its not able to gain anything in roubles. The price is rated in USD, converted to currencies like the Yuan and paid to Russia in Yuan. You can’t use Yuan to buy roubles through Chinese banks. Even Russian companies trading with China have to trade with Yuan. The Russian central bank forces them to exchange Yuan for Roubles and repatriate the money to Russia – but they normally spend it before they waste it doing so in the time frame they’re given.

Ultimately this is the biggest and most serious red alert Russia has faced on the economy. It’s a fundamental problem, currency is the life blood of any economy and this is beyond a transfusion. There’s no simple way to put this right. Only ending the war, restoring trade, ending sanctions, regaining confidence in the rouble, will ever make a difference. And we’re nowhere near seeing that happen.

The Kremlin has a deep, fundamental economic crisis on its hands and there’s no getting away from it.
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@Scottyboi wow. Many thanks for posting that. Now I understand the problem.
They really are in the shit.

Oh and sorry for tagging you in, @gordondaviesmoustache says I don't have to. :-)
 
gordondaviesmoustache said:
I don’t expect, given the source, the author intended to conflate the ending of the war with an end (or even a meaningful reduction) to sanctions, but it’s hugely important this narrative doesn’t take hold if Russia gets to keep a single square inch of what it has stolen since 2022 (since 2014 might be a bit of a stretch).
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From my understanding they're saying what's required for the rouble to recover not what should happen at the end of the war.
 
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