Ruble in trouble: Russian currency plummets amid Ukraine war sanctions

Russia's central bank hiked interest rates to 20 per cent Monday in an attempt to maintain the value of the country's plummeting currency, the ruble.

Ordinary Russians faced the prospect of higher prices and crimped foreign travel as Western sanctions over the invasion of Ukraine sent the ruble plummeting, leading uneasy people to line up at banks and ATMs on Monday in a country that has seen more than one currency disaster in the post-Soviet era.

The Russian currency plunged about 30% against the U.S. dollar Monday after Western nations announced moves to block some Russian banks from the SWIFT international payment system and to restrict Russia’s use of its massive foreign currency reserves. The exchange rate later recovered ground after swift action by Russia’s central bank.

But later Monday, the U.S. Treasury Department announced new sanctions that would immobilize any assets of the Russian central bank in the United States or held by Americans. The Biden administration estimated that the move could impact “hundreds of billions of dollars” of Russian funding.

In Russia, people 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.