CFR Update: Ruble Slide Raises Fears of Russian Economic Crisis

Top of the Agenda

Ruble Slide Raises Fears of Russian Economic Crisis

The ruble remained volatile (WSJ) Wednesday morning, and Russia's finance ministry said it would start selling foreign currency (Bloomberg) after a hike in interest rates on Tuesday failed to stabilize the currency. The ruble has lost about half of its value amid falling oil prices and Western sanctions for Russia's actions in eastern Ukraine. A White House spokesperson said on Tuesday that U.S. President Obama is set to sign (NYT) legislation later this week to approve new sanctions against Russia, and EU officials announced the expansion of a ban (Reuters) on investment in Crimea to target Russian oil and gas exploration in the Black Sea.

Analysis

"Since the root cause is the western financial sanctions, the only realistic cure is to have these sanctions lifted. The Kremlin can accomplish that by fully and credibly evacuating its troops and armaments from eastern Ukraine. No other action is likely to have a significant economic effect. The big policy lesson that might arise from this drama is that financial sanctions are far more effective in the modern globalised world than many thought possible," writes Anders Aslund in the Financial Times.

"Even if the demand calms (or if bans on using dollars are imposed) Russian banks face huge problems. The shrinking economy, falling inflation-adjusted incomes and massive interest-rate hikes mean that defaults are bound to rise," writes the Economist.

"To be sure, Western sanctions alone aren’t imploding Russia’s economy. Scads of pre-existing conditions, from corruption and cronyism to overreliance on the oil and gas sectors, and the 50 percent plunge in crude oil prices since this summer, have poleaxed an economy reliant on sales of black gold for revenue," write Keith Johnson and Tamila Trindle in Foreign Policy.