Russian expert explains how the ruble ‘backwards’ quickly

The ruble can appreciate even more – Photo: THE MOSCOW TIMES

Radio RT spoke with Dr. Sergey Kopylov – expert at BSC consulting firm and leader of the research team at Russian Economic University Plekhanov – to find out what is behind the ruble’s rapid recovery.

According to researcher Kopylov, the West has no longer obliged to Russia when it freezes the assets of the central bank of this country. “This is the deregulation of international financial relations based on global total return swaps, risk reallocation, asset guarantees and distribution of ownership,” he stressed.

It was these rules that determined the old exchange rate of the ruble and the approaches to setting the rate with which we are familiar.

However, since the West sanctioned Russia for its involvement in the hostilities in Ukraine, those rules “no longer apply” and that is The reason for the recent strong increase in the ruble, according to Mr. Kopylov.

According to researcher Kopylov, the strengthening of the ruble is because it is now completely based on imports and exports, and its value is determined by purchasing power parity (PPP).

The International Monetary Fund (IMF) estimates the PPP of the Russian currency at the end of 2021 at 29,127 rubles/USD. According to the Big Mac Index, that rate stands at 23.24 rubles/USD.

Kopylov also noted that before the sanctions, the artificial weakening of the Russian currency was also supported by capital outflows for the import of goods.

In 2021, net exports (exports of goods and services exceeding imports) amount to $122 billion. This foreign exchange money is used to purchase foreign assets.

At a time of sanctions and the cancellation of Western financial obligations to Russia, the flow of Russian currency became devalued for international payments. Therefore, the $ 58 billion that the Russian economy received from exports in the first quarter “powered” the appreciation of the ruble.

Experts’ assessments show that under these conditions, the ruble can strengthen at 45-50 rubles/USD, if there is no adjustment in monetary policy.