Menu Close

Russia Wins Currency War, Even if it Doesn’t Want to

“The ruble weakened to a record for the fifth day on concern Russia will quicken its move to a free float after more than $20 billion of interventions this month failed to halt the depreciation,” Bloomberg reported today, the same sort of line we’ve been seeing for weeks – in an environment when all major central banks have declared currency war on each other.

The dollar has been methodically devalued ever since the Federal Reserve System was created to manage it 100 years ago. Beating down the dollar in an orderly manner is so ingrained no one even questions it. They call it “price stability of 2% inflation.” Other central banks try to keep up. The result is a race to the bottom: whoever gets there first wins. But ironically, you have to try to get there slowly. If not, mayhem breaks out. The good thing is, currencies have no real bottom, and the race can go on for a long, long time.

In that environment, the ruble has been among the winners recently. We’re even told why: “The sanctions bite,” or something to that effect.

But initially, in a nasty surprise for policymakers in the EU and the US, the ruble didn’t plunge when US and EU sanctions were being bandied in March in response to the Ukrainian fiasco. The ruble actually rose against the dollar for nearly four embarrassing months.

June 26, the party ended. On that propitious day, the sanctions suddenly began to “bite,” as the media likes to say, and a sharp decline began. In late August, it pierced its record low set in February 2009, during the financial crisis. It continued stair-stepping down from one record low to the next. Since June 26, the ruble has plunged 20.5% against the dollar.


A major reason for the decline: Russians have been selling rubles and buying foreign currencies. A big part of which ends up overseas, beyond the reach of the Russian government. Capital flight may hit $120 billion in 2014, according to government estimates, and more according to others. But some of the foreign currency stays in Russia: bank deposits in euros and dollars have jumped 17% for the first eight months of this year.

Join the conversation and have a little fun at If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

This site uses Akismet to reduce spam. Learn how your comment data is processed.