The Russian ruble plunged nearly 30% against the dollar on Monday after international powers imposed new, tougher sanctions on Moscow over its invasion of Ukraine, AFP reports.
According to the report, the Russian ruble collapsed against the dollar and the euro on the Moscow Stock Exchange on Monday morning, and trading stopped as prices almost instantly reached the limits set.
You had to provide 90 rubles to get a dollar on Monday morning, against 83.5 at the last official rate on Wednesday, before the invasion of Ukraine. Against the euro, the exchange rate fell from 93.5 to 101.19 rubles.
Even before the opening of trading, the ruble was listed down 27% to 114.33 rubles per dollar in international trade this morning, according to Bloomberg.
The United States and the European Union have said they will exclude certain Russian banks from the Swift international banking payment system and have personally targeted Russian President Vladimir Putin and his Foreign Minister Sergei Lavrov.
AP reported that Russians wary that sanctions would deal a crippling blow to the economy have been flocking to banks and ATMs for days, with reports in social media of long lines and machines running out.
Moscow’s department of public transport warned city residents over the weekend that they might experience problems with using Apple Pay, Google Pay and Samsung Pay to pay fares because VTB, one of the Russian banks facing sanctions, handles card payments in Moscow’s metro, buses and trams.
A sharp devaluation of the ruble would mean a drop in the standard of living for the average Russian, economists and analysts said. Russians are still reliant on a multitude of imported goods and the prices for those items are likely to skyrocket. Foreign travel would become more expensive as their rubles buy less currency abroad. And the deeper economic turmoil will come in the coming weeks if price shocks and supply-chain issues cause Russian factories to shut down due to lower demand.
“It’s going to ripple through their economy really fast,” said David Feldman, a professor of economics at William & Mary in Virginia. “Anything that is imported is going to see the local cost in currency surge. The only way to stop it will be heavy subsidization.”
The Russian government will have to step in to support declining industries, banks and economic sectors, but without access to hard currencies like the U.S. dollar and euro, they may have to result to printing more rubles. It’s a move that could quickly spiral into hyperinflation.
The ruble slide recalled previous crises. The currency lost much of its value in the early 1990s after the end of the Soviet Union, with inflation and loss of value leading the government to lop three zeros off ruble notes in 1997. Then came a further drop after a 1998 financial crisis in which many depositors lost savings and yet another plunge in 2014 due to falling oil prices and sanctions imposed after Russia seized Ukraine’s Crimea peninsula, AP reports added.
Russia’s central bank immediately stepped in to try to halt the slide of the ruble. It sharply raised its key interest rate Monday in a desperate attempt to shore up the currency and prevent a run on banks.
The bank hiked the benchmark rate to 20% from 9.5%. That followed a Western decision Sunday to freeze Russia’s hard currency reserves, an unprecedented move that could have devastating consequences for the country’s financial stability.
It was unclear exactly what share of Russia’s estimated $640 billion hard currency pile, some of which is held outside Russia, would be paralyzed by the decision. European officials said that at least half of it will be affected.
The G7 countries – Canada, France, Germany, Italy, Japan, Britain and the United States – have warned that they will take “further measures” in addition to the sanctions already announced if Russia does not cease its operations military.