Is the Russian ruble rebounding and, if yes, then why?

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Ever since Russia commenced its “special military operation” (a/k/a war) in Ukraine on February 24, 2022, the West has hit that nation with a unified slew of sanctions of amazing severity. In fact, no country — large or small — in recent memory has ever been hit by such stringent and coordinated sanctions.

Therefore, given that the West has launched an economic “nuclear bomb” on Russia, one expects the Russian economy to be in considerable disarray. One metric that analysts use to determine the extent of this disarray is to look at the rate at which Russia’s currency, the ruble, is trading against major currencies such as the U.S. dollar.

Before the “special military operation,” the Russian currency was trading at 74 rubles to the dollar. It then slid, according to Reuters, to 122 rubles to the dollar on March 10, before, somewhat remarkably, rebounding to 83 rubles to the dollar on April 11. So, there can be no denying the fact that even though President Biden once referred to the ruble as “rubble” and contrary to the expectations of many analysts, the Russian currency has rallied significantly from its low of 122 rubles to the dollar.

That said, it is also true that inflation in Russia is rising and the purchasing power of the ruble has definitely fallen. In this regard, Reuters reports the existence of multiple rubles to dollar exchanges rates depending on what kind of financial transaction one is undertaking.

Even so, the above state of affairs does not help us comprehend why the ruble has rebounded as impressively as it has against the dollar. The simple answer is that the Russian central bank, and Putin’s government more generally, have been pulling out all the stops to strengthen the ruble.

Given the multiple military and economic difficulties Putin’s government presently confronts, why has it placed so much emphasis on strengthening the ruble? One plausible answer is the wide visibility of the exchange rate at which the ruble trades against other major currencies such as the dollar.

As the Nobel laureate Paul Krugman has rightly pointed out, authoritarian governments frequently attempt to suppress unfavorable economic data. Therefore, if the Russian economy were to go south in the foreseeable future — as many economists expect will happen — then one can certainly expect bad news in the form of, for instance, high inflation, a slowing economy, and a declining gross domestic product (GDP). Given how extensively muzzled the current media in Russia is, will Putin’s government permit the media to truthfully reveal this bad news? The answer, almost certainly, is a resounding “no.”

That notwithstanding, it is difficult to hide the ruble-dollar exchange rate because this information is widely available in Russia in banks, in foreign exchange booths, and when one attempts to buy dollars online. In other words, there is significant propaganda value in being able to claim that despite the stringent sanctions imposed on mother Russia by the malign West, the Russian economy is doing just fine and exhibit A here would be the rebounding ruble-dollar exchange rate.

In sum, the Institute of International Finance claimed in a recent report that the current crisis in Russia “will wipe out 15 years of economic development.” Instead of relaying this kind of information to the public, Putin’s government would find it so much more convenient to rubbish the claim by pointing to how strong the Russian ruble is relative to the U.S. dollar.

Batabyal is the Arthur J. Gosnell professor of economics in the Rochester Institute of Technology but these views are his own.