As Martin noted, the ruble zoomed close to 80 / USD in recent hours. It's been beyond 70 for most of the past six hours.
I can't stress this too strongly: THE FUNDAMENTAL PROBLEM OF THE RUSSIAN ECONOMY IS PUTIN.
Putin is a gangster, and everything he touches is incurably filthy and corrupt. In his 15 years running the Russian Federation, most economic growth has been fueled by petroleum. The underlying economy has also grown, but at a rate that is far too weak considering its wretchedly low Soviet starting point. [The way the world works, high growth rates are both easier to achieve and more necessary when you are very poor -- see the example of China.] Why has Russian growth been so disappointing, when the Soviet Union left as its legacy a massive industrial infrastructure and a well-educated population?
The problem is corruption. Putin can't offer an alternative to corruption, because he IS corruption.
So what happened to the ruble today, to spike it almost to 80 / USD?
Rosneft is one of Russia's giant state-owned petroleum countries (note well that the countries with the healthiest economies generally avoid ownership of industrial enterprises). It's boss, Igor Sechin, is a crony of Putin (gee, what a surprise). Sechin was worried because he doesn't have enough cash to pay all of Rosneft's bills. So he made a phone call, and said "gee, I need money."
In response, Russia's central bank bought a huge pile of Rosneft bonds. Note that buying a bond is the same thing as loaning the price of the bond.
Russian markets interpreted this transaction as (1) opaque (took place behind closed doors), (2) cronyism, and (3) an expansion of the ruble supply: the billions of rubles the central bank put into those bonds was effectively freshly printed money.
Now, there's a lot of confusion and hysteria in the West about "printing money." NO, it doesn't always cause inflation, and people who say so are ignorant of reality.
But the idea of this morning's interest rate hike was to support the ruble by increasing DEMAND. The central bank then immediately made an increase in SUPPLY, completely undoing the shift in supply/demand balance it had hoped to achieve.
Putin can never cure Russia's corruption.
Russia can only rid itself of corruption, by the destruction of Putin.
FXCM (Forex Capital Markets) is an online Foreign exchange market broker based in the United States. It was one of the first firms to specialize in brokering of currency trades.
According to Reuters, FXCM "halted trading of Russia's battered ruble on Tuesday, saying it expects major traders of the currency to stop pricing the ruble this week in anticipation of the introduction of capital controls."
Early this morning (see previous page of this thread) I made a long post, explaining why today's steep increase in interest rates is a rather desperate and likely ineffective response to the collapse of the ruble.
Another tool countries use to defend a collapsing currency is the introduction of capital controls: laws or regulations that limit the ability to move money to or from foreign countries. (In this case, the intention would be to prevent money from leaving Russia.)
Capital controls would be even more desperate, and possibly more dangerous, than a steep increase of interest rates.
Russia's economy is heavily dependent on foreign investment. If I invest my money in a foreign enterprise (let's say, in Tiranistan), I eventually want to make a profit. The way I realize my profit, is by getting money back OUT from Tiranistan. If Tiranistan blocks outward capital flows, then my investments there suddenly become worthless.
So, Russia can "freeze its rubles" in place by capital controls, but only at the cost of starving its enterprises of foreign investment.
To give the most salient example, Russia has "cheap petroleum" and "expensive petroleum". Its reserves are enormous, but some of them are very hard to extract. To keep its petro industry going, Russia will need massive amounts of capital investment (all this is academic while oil is so cheap, but low prices won't last forever). There just isn't enough capital in Russia to do the job.
But other industries would be affected as well, and some of the great "success stories" of Putin's Russia are foreign businesses operating in Russia.
(By the way, Volvo dealerships in Russia have just stopped selling, because they don't know how to price their vehicles with the insane fluctuations of exchange rates.)
In the US Navy, aviators say "the box" to refer to a situation in which all of your options are gut-wrenching. An example of the "the box" is when a plane is launching from a carrier, and catapult malfunction sends it off the deck at insufficient airspeed. The options are plunging into the sea (with a gigantic ship bearing down on you at very high speed), or pulling the ejection seat handle, which is terrifying and dangerous (depending on the vintage of your seat, there is a high risk of broken bones, dislocated joints, or death).
Putin's tyrannical and criminal leadership of Russia has put its economy into "the box."
The US President today signed into a law an act that passed UNANIMOUSLY in the national legislature, providing for both increased sanctions against Russia, and aid to support Ukraine's armed forces.
(For those who don't follow US politics, for congress to pass anything substantive without opposing votes is extremely unusual.)
Obama was hesitant to sign the bill, because he doesn't want to "get ahead" of Europe on sanctions. His reasoning is that sanctions will be needed for a long time -- probably years -- and to keep them stably in place, it is vital that the US and Europe work together.
However, the new law provides for a great deal of presidential discretion. The military aid to Ukraine, and the sanctions (or at least most of them) are not mandatory; rather, the law gives the president authority to take these actions. [Note: I'm not clear about this, but I have the impression that a few of the sanctions are automatic.]
So right now, the effect of the law is mainly symbolic -- but I think it is quite a strong message. At least, the Kremlin isn't joking about it: they are furious.
The Russian ruble came under intense selling pressure Tuesday, falling at one point by a catastrophic 20 percent to a new historic low despite a massive pre-dawn interest rate hike from Russia's Central Bank. Russian officials were clearly rattled even though state television urged citizens not to panic.
"The situation is critical," Deputy Central Bank chairman Sergei Shvetsov was quoted by Russian news agencies as saying. "We could not have imagined what is happening in our worst dreams."
The Central Bank's surprise decision to raise the interest rate to 17 percent from 10.5 percent in the middle of the night Tuesday appeared to be a desperate attempt to prop up the troubled currency. The ruble has fallen sharply in recent weeks and is down more than 60 percent since January, due to sinking oil prices as well as the impact of Western sanctions imposed over Russia's involvement in Ukraine's crisis.
The ruble's collapse has spurred ordinary Russians to rush out and buy imported products such as fridges and cars, since inflation is making those items more expensive daily. It is also likely to heap pressure on President Vladimir Putin, despite his wide popular support.
I am right there with you, in worrying about Crimea. It's a tough situation.
Stopping the war in Donbas is very important -- and if the West doesn't give substantial relief from sanctions as a "carrot," then Putin has no incentive to stop the bloodshed. If it were up to me (of course, my thoughts on this carry no weight at all), then sanctions relief would be tied not to a cessation of warfare, but rather the restoration of the Donbas to control of the Kyiv government -- only then would I want to cut sanctions.
In any case, even if Putin ceases fire (which seems a real possibility at this moment), at least some of the sanctions will stay in place as long as Russia continues to claim Crimea. Whether those remaining sanctions will make any difference, I just don't know.
The West will never recognize Russia's annexation (for an example, see Cyprus). For Russia to relinquish its claim is likely to take a long time -- until after Putin is gone from power. Also, German Chancellor Merkel has referred to the unacceptability of the annexation over and over (Obama has also expressed this, though not so many times). And I don't think she is "out in front" of most of Europe. They remember WW II well enough -- while they won't fight Russia to liberate Crimea, they will not give the annexation their OK, even in 2050 or beyond.
The unanimous vote in the US Congress suggests to me that the USA isn't going to accept the legitimacy of annexation, whoever may be the next US president (or the president after that).
From a practical standpoint, Kyiv has its hands full with a myriad of hard problems. The re-integration of Crimea would be yet another difficult and costly mess, which Ukraine doesn't need right now.
It's a sad situation. I believe that the West probably could have prevented the annexation; but things are now where they are. Until Ukraine itself is strong enough to reverse the annexation, all the rest of the world can do is to keep up some pressure.
“This means that a collapse in the oil price threatens the fragile foundations of the current system, in which the Kremlin buys the loyalty of the majority with state handouts. The Kremlin needs the price of oil to remain high, and even to rise if it is to continue to deliver rising living standards”
While Google-ing, I found this article from April 2914 "The falling ruble is starting to impact Spanish property sales to Russians, who have been among the most active foreign buyers in recent years." My sister who lives in Spain, tells that the Ruskies are selling their summer houses ... Anyone looking for a bargain in the Costa Brava area?