Posted by Shane Luczak
At the time of writing this article, over the last two weeks Russia has begun their invasion of Ukraine. It has made the headlines worldwide, as citizens across the globe have voiced their opinions on the conflict. My heart goes out to those on both sides of the conflict, but this piece’s purpose is not to reflect on the politics or social impacts of the situation, but instead the economic impact of these events. One thing that I feel is being overlooked by the general public is the impact this conflict is having on Russia’s currency and their economy as a whole.
As it pertains to the Russian currency (ruble) it has been a disastrous first week since the initial invasion. The ruble has fallen 30% against the dollar, now making one ruble less than one cent (US). This is partially due to Russia’s banks being temporarily blocked from SWIFT (Society for Worldwide Interbank Financial Telecommunication) essentially disabling them from making transactions with other countries. As their currency may continue to weaken, this opens the door for inflation which will anger Russians who have saved up large amounts of rubles. This would also increase the cost of living, increase foreign goods and travel, and in turn anger innocent Russian citizens even more.
Another action that has recently happened was that the U.S. Department of Treasury barred Americans from conducting business with Russia’s central bank, in turn further decreasing the demand for the ruble. The actions made by countries across the globe including the United States, are seen as crushing by many economists. Due to these actions, Russia’s GDP is expected to decrease by 5% this year. Russia knows where their economy is headed, in the sense that if they do not turn it around soon, they may face hyperinflation. Russia’s response to the decreasing value of their currency was to raise interest rates from the current rate of roughly 8% all the way up to 20%. This move will potentially help stop the bleeding for now, but in the future if they are still unable to access currencies such as the Euro or the US Dollar, they may have to resort to printing more of their own currency. Those in the US know what that means all too well, and if Russia has to resort to that plan, inflation will be inevitable regardless of the interest rates. This will lead to many innocent Russian citizens losing large amounts of value from their savings, checking, and retirement accounts. Nobody knows when the conflict will be resolved but if it goes on too long, the impact will be felt by the Russian economy and their citizens for decades.
Shane is a Finance student at Seton Hall University, Stillman School of Business, Class of 2024.
https://www.cbsnews.com/news/russia-ukraine-ruble-sanctions/