The Complex Relationship Between the USD and Russian Ruble: Why the SMSA Theory Fails

There has been considerable debate and misinformation circulating around the reasons behind the fluctuations in the value of the Russian Ruble (RUB) against the US Dollar (USD) over the past two years. Some commentators, particularly those favoring certain geopolitical narratives, have suggested that Putin's actions are the primary factor influencing the exchange rate. However, a quick examination of the economic data and historical context reveal a more nuanced and complex picture.

Why Did the USD Value Against the Russian Ruble Rise Rapidly in Early 2020?

One of the most significant events that impacted the RUB-USD exchange rate was the onset of the Russian invasion of Ukraine in February 2022. The ensuing sanctions imposed by international bodies, particularly those from the West, contributed significantly to the decline in the value of the RUB. While some theories suggest that Putin's actions sparked the exchange rate changes, this narrative oversimplifies the complexity of global economics and geopolitics.

The Impact of Sanctions on the Russian Economy

The UK ruble (RUB) experienced a sharp decline during the early stages of the conflict as international trade and financial transactions with Russia were severely restricted. However, since then, the RUB has shown signs of stabilizing and even gaining ground. This stabilization can be attributed to several factors:

Internal Props: The Russian government has implemented measures to support the RUB, including heavy subsidies and buy-ups by the Russian central bank through its National Wealth Fund (NWF) and direct interventions. Resource Exports: Despite the decline in demand due to sanctions, Russia's oil and gas exports have continued to generate significant revenue, which has helped to prop up the RUB. Price Manipulation: Putin's regime is attempting to use its control over energy resources as diplomatic leverage, pricing its gas to gold. As gold is priced in USD, this strategy can, paradoxically, reinforce the USD's value relative to the RUB.

Conspiracy Theories and Market Reality

There are also conspiracy theories suggesting that the Russian Central Bank (CBR) deliberately weakens the RUB to maintain the Ruble price of Brent oil at a certain level, particularly above 4000 rubles per barrel. While these theories persist, there is no substantial evidence to support them. Instead, the reality is that the strength of the RUB against the USD is closely tied to macroeconomic factors, including supply and demand dynamics, geopolitical tensions, and global oil prices.

Historical Context and Recent Developments

For a more accurate understanding of the RUB-USD exchange rate, it is essential to consider the historical context. In March 2020, the RUB experienced a significant dip during the global coronavirus panic. Investors sold off Russian assets and converted their currency to more stable currencies like the USD. This led to a temporary decline in the RUB value, but it did not continue as the Russian economy recovered from the initial shock.

Current Market Conditions and Future Projections

According to Mila Lana of Siberia, Russia, the current market conditions under Putin's rule are dire. The Russian economy is facing a severe collapse, surpassing the economic turmoil of the end of the Cold War. This economic pressure has led to devaluation, with even basic items like matches becoming unaffordable. The RUB's future value will depend on how the ongoing sanctions and geopolitical tensions evolve.

Key Takeaways

The RUB-USD exchange rate is influenced by a combination of internal and external factors, such as sanctions, energy exports, and global oil prices. Conspiracy theories about deliberate manipulation by the CBR are not supported by empirical evidence. The value of the RUB is currently showing signs of stabilization, supported by internal economic measures and resource exports.

In conclusion, while Putin's actions have contributed to the Russian economy's challenges, attributing the RUB-USD exchange rate changes solely to these actions oversimplifies the complex interplay of global economics. Understanding the full context and the influence of external factors is crucial for a comprehensive analysis of the situation.

Keywords: USD, Russian Ruble, Sanctions, Economic Collapse, Currency Value