The Russian ruble is recovering despite strict sanctions against Russia despite its involvement in the conflict between Ukraine and Russia. The country’s central bank has taken a few steps to protect the nation’s currency as the Bank of Russia revealed a fixed price for gold and rubles. Furthermore, after pegging the fiat currency to gold, on Friday Russia’s central bank announced a surprise interest rate cut that starts Monday.
EU leaders and western allies create stricter sanctions amid ruble rebound
At the end of February, after the conflict started between Ukraine and Russia, the European Commission and Western allies imposed strict restrictions on the Bank of Russia’s international reserves. These sanctions caused bank runs, and the Russian Ruble plunged to new lows against US dollars. European leaders plan to stop Russian coal imports, despite the harsh sanctions still being imposed on Russia.
The European Union’s leaders officially agreed on Friday to end coal mining and that all current contracts with Russia should be cancelled by August. Along with preventing the export of jet fuel, certain chemicals and vodka were also prohibited by the EU. The Russian ruble has remained afloat despite the bans and has been able to trade at par with the U.S. dollars. According to analysts and economists, the Russian government has made a number of shrewd chess moves in recent years. One such move was the announcement that the ruble will be backed with gold.
Russia’s central bank pegged the price of RUB to 5,000 for a gram of gold. The practice of creating a gold equivalent for national currencies is something nations used to do decades ago. However, most countries have since stopped using it. Many people are aware of the importance of speculatorsIt is believed that the U.S. will see a lasting impact on its currency if it creates a ruble-gold parity. A ruble-to-gold peg could increase the currency’s appeal in Forex markets, and attract other nations interested in the goldbacked framework.
Russian Gas will be paid in ruble only, Bank of Russia reduces interest rate
Another step Russia has taken to protect its financial interests is a new law that requires “unfriendly” countries to pay for gas with the ruble. This order, signed by Vladimir Putin (Russian president), was put into effect April 1st. “In order to purchase Russian natural gas, they must open ruble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow,” Putin explained in statements he made on Russian television.
On Friday, the Bank of Russia slashed the country’s benchmark bank rate from 20% to 17%. The rate will become effective on Monday as the central bank said it “changed the balance of risks” in order to curb inflation. “External conditions for the Russian economy are still challenging, considerably constraining economic activity,” Russia’s central bank disclosed in a statement on Friday. “Financial stability risks are still present, but have ceased to increase for the time being, including owing to the adopted capital control measures.”
Despite the sanctions and conflict, talks to end war between Russia and Ukraine have not succeeded. A rocket attack claimed at least 50 lives in Kramatorsk (Ukraine), according to Friday’s reports. Russia also demands that Russia recognizes Donetsk, Luhansk, and other independent areas. They are both located in east Ukraine. Vladimir Putin asserts that the two areas are autonomous.
For now, Putin’s and Russia’s ruble has a lot more strength than it did at the beginning of the war, and Luis Saenz the head of international distribution at Sinara says the Bank of Russia does not want the momentum to stop. “The central bank wants to be a locomotive of the economic rebound, not a brake,” Saenz said on Friday.
Let us know your thoughts on the Bank of Russia’s actions to safeguard the economy, and about the recent rebound in the ruble. Comment below to let us know your views on the subject.
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