Which currency was the most successful in September?
The Russian ruble. After plummeting to 139 rubles per $1 on March 7, the ruble recovered and was at 80 rubles. This is slightly lower than last year. The recovery is impressive when compared to rubles. At the end of February, it took 89 rubles for a euro to be purchased. It rose to 145 rubles by March. It now stands at 87.32.
One joke among foreign currency traders was the idea that the Russian central bank would need to lower interest rates to stop the ruble from becoming too strong and to make exports more affordable. It’s unlikely but it is important. The sanctions against Russia were intended to make Russia’s currency inaccessible to global markets and to weaken Vladimir Putin’s economy. The recovery has shown that the sanctions are not working as planned, despite being strengthened by both the official measures and the private companies quitting all business ties with Russia.
The main reason is natural gas. Russia demanded that Europe pays in rubles for natural gaz. Only Hungary has indicated that it intends to comply so far, but it is unclear if the rest of Europe will follow their lead. This would raise demand for rubles in countries that have a large amount of their savings in euros. The ruble will lose value against the euro. Markets act as anticipation engines. This is what has been happening long before the European surrender on the currency issue.
Russia would like to pay in rubles. This is a complicated question. First, Russia has not been able to access many items that it could use dollars and euros due to sanctions and private sector actions. The West has frozen Russia’s foreign reserves. We stopped Russia from importing most of the world’s goods. It was extremely difficult for Russian energy payments financing to be secured. Russia was unable to get financing for its energy payments because of our actions. Russia was forced to decrease its demand for dollars, euros and euro by increasing the supply and decreasing dollar use. Russia was forced by the United States to accept payments in its currency.
Russia will likely require ruble payments in exchange for natural gas sent to Europe. This will increase global demand for ruble. This will strengthen both Putin’s government and Russian financial institutions. Russian banks will be able finance people who purchase commodities in rubles. Russian bank loans are the main source of rubles. Russia will encourage Russia’s exports to Russia to obtain rubles. This system will offer an alternative to the eurodollar system for countries that are closer to Russia or wish to be more like the West.
This will likely result in a higher demand for Russian government bonds from Russian banks and exporting countries. This could be particularly beneficial to China. It could create a ruble-backed currency alternative system as part of its long-term strategy to supplant the United States. China could buy Russian bonds to diversify its U.S. Treasury assets.
This goes beyond financial flows. This will have an impact on real commodity and product flows. As more oil and natural gases flow from the west, from Europe to China and from Europe to China, there will be increased competition for shipping. This will likely result in higher shipping costs worldwide. Europe will be more dependent on oil from Saudi Arabia as the U.S. does not have any means to export oil to Europe’s east coast ports. This will result in shipping via the Suez Canal.
This has been going on for some time, but it was not visible to the world. It is possible that Russia’s invasion of Ukraine could be the catalyst for positive change.