The ruble has bounced back from its lows earlier in the week after the central bank halted all foreign currency purchases for the rest of the year, but remains in tatters and with dwindling resources to prevent further collapse.
On Friday, the central bank set the official rate at about $108 to the dollar. That's an improvement from Wednesday's spot market rate of 114, but it still means one ruble is worth less than a penny.
The ruble has fallen 9% against the dollar since November 21, when the United States imposed sanctions on about 50 Russian banks, including Gazprombank. Gazprombank has emerged as Russia's biggest linchpin in the currency market. Since the beginning of this year, the ruble has fallen by about 20% against the dollar.
This could make Russian exports cheaper and increase exports, but it is likely to further accelerate inflation by making imports more expensive. Despite Western countries largely cutting off trade with Russia, many imports have been replaced by Chinese products, and the ruble has also depreciated against the yuan.
Over the summer, Russian businesses and banks were already suffering from a shortage of the yuan, the country's most traded foreign currency and a key economic lifeline.
Meanwhile, Russia's sovereign wealth fund has been repeatedly used to prop up the ruble, leaving the Kremlin with less firepower to fight further currency collapse.
Just before the latest crash, the National Wealth Fund had $55 billion in liquid assets as of last month. According to Bloomberg. This is down from $140 billion before Russia invaded Ukraine in 2022.
Although Russia can still earn foreign currency by selling oil and gas, the shrinking of its sovereign wealth fund will leave the country at the mercy of falling energy prices amid falling global demand.
The central bank could also raise the benchmark interest rate further to combat rising inflation while increasing demand for ruble-denominated assets. However, interest rates are already at a very high level of 21%, and any further rate hikes would put further pressure on the Russian economy.
On Friday, the central bank said: No emergency measures required It comes to support the ruble after President Vladimir Putin said on Thursday that the situation was under control.
Russia's currency crisis comes as analysts predict the economy will not be able to sustain President Putin's war with Ukraine beyond next year. For example, Russian factories can't produce enough critical weapons systems to replace losses on the battlefield, and the former Soviet Union's stockpiles are depleting.
