By virtue of sanctions, Russia’s ruble stronger than before war

In the days after Russia invaded Ukraine in February 2022 and the west imposed sanctions, Russia’s ruble collapsed. The number of rubles to one US dollar quickly fell from about 78 to 138, a huge move in the world of forex, and terrifying for those with their wealth in the Russian currency.

Western sanctions have tightened and the war shows no signs of reaching an end, but something unexpected has happened to the ruble. Many commentators had thought it would continue weakening, but instead it is now stronger than when the war began. The US dollar is now worth 57 rubles, the best exchange rate in about four years.

First the backstory. The exchange rate of any country is determined by capital and trade flows: in other words, what money is moving in and out of the country, and the value of exports compared to imports. For the ruble, trade flows are usually more important because Russia is a major oil exporter.

The oil price, as you can see from the chart below, is linked to the ruble, when oil rises, the ruble gets stronger. The price of oil has broadly been climbing since the first half of 2020, which benefited the ruble in the run-up to the war.

However, the ruble hasn’t risen over that period by as much as it normally would when oil is strong – this is why the two lines on the chart are less in sync since then. This is probably due to changes in capital inflows, specifically over Russian government debt. The share of foreign investors (non-resident holders) in federal loan bonds reached a historical maximum of 35% in March 2020, but had declined to 18% before the war.

The reason was changes in tax rules. The interest payments on Russian government bonds for foreign investors were tax-free until a law was passed on March 31 2020 to the effect that they would start paying 30% from January 1 2021. Notice that the ruble started falling as foreign investors began selling their bonds after March 2020.

This explains why the ruble was broadly flat between then and the invasion, in a sign that sales of government bonds more than offset the effect of the strong oil price (you get a sense of this in the chart below, where the bonds are in blue). In short, this bond-selling was a temporary millstone around the ruble that was keeping it lower than it otherwise would have been. Over time, this effect will have reduced, giving the ruble some upward momentum as the oil price remains high.


When the ruble sank to 138 to the USD in the days after the invasion on February 21, this was its lowest ever level. On February 24, the Central Bank of Russia announced several measures to support the currency.

It banned margin trading, which is when investors borrow money to make much bigger bets in the markets than they can otherwise afford: this meant they couldn’t exacerbate the damage to the ruble by betting heavily that it would fall further. The central bank also used its foreign reserves to buy rubles in the currency markets to help prop up the price. Yet the ruble kept falling, suggesting the moves were not enough.

One reason was a package of western sanctions that were unexpected and arguably the most severe ever imposed, including freezing 60% of Russia’s USD 643 billion international reserves on February 27. This package severely limited the Russian central bank’s access to its assets abroad and its ability to bolster the ruble.

One reason the ruble has strengthened is the restrictions on margin trading and on foreign investors, which has meant that trading volumes have been much lower than usual. The rule forcing exporters to exchange foreign earnings and the partial move to selling gas in rubles have also helped.

Equally, however, other factors unrelated to the Russian central bank have been at play. The oil price has remained strong. Having dipped from a peak just above USD 130 per barrel in mid-March to around USD 100 a few weeks later, Brent is now at around USD 120.