The impact of the war in Ukraine on the rouble market

In just 2 months, the rouble has made an impressive comeback despite international economic sanctions against Russia as a result of the war in Ukraine. Defended by a series of strong measures, it escaped collapse, but the market has been totally transformed.

Strong measures to restore the rouble

On February 28, the central bank raised interest rates to 20%, and the government forced Russian companies to convert at least 80% of their foreign earnings into rubles.

Russian brokers were banned from selling securities to foreign investors, and private individuals saw money transfers abroad banned and then restricted. The Central Bank also linked the ruble to gold, resuming gold purchases at a fixed price of 5,000 rubles per gram until June 30, which allowed the ruble to strengthen against the dollar.

These various measures contributed to the ruble's meteoric rise, which gained 21% against the euro and 12% against the dollar.

But the market has undergone a metamorphosis. Since mid-February, dollar-rouble transactions in Russia and abroad have plummeted. According to Goldman Sachs, they have fallen by a factor of 5.

Many Western banks have decided to stop holding rubles, or even processing this currency for their customers, for as long as the war in Ukraine lasts.


Banks try to cope with falling volumes

Some banks are now unable to provide their customers with a liquidity guarantee, as volumes have plummeted. Others are deploying adaptive strategies to cope with both international sanctions and collapsing volumes.

Thus, a transfer order for 1 billion rubles will be divided into 4 transactions of 250 million rubles each, to limit the risk taken by the bank. The ruble may have recovered, but the risks are too great for banks, which have to deal with the currency's volatility, the threat of a further fall or the temporary impossibility of converting it.

Western banks therefore ensure that they have little or no stock of rubles at the end of the day. It's also difficult for them to sell rubles, as the Russian authorities no longer allow them to be short of rubles.

As a result, it is no longer possible for a Western bank to request an advance from its Russian subsidiary or correspondent, which considerably limits its room for maneuver.

Contrary to appearances, the ruble's rebound does not mean that the economic situation is improving, but is solely the result of a number of strong measures taken by the Russian government, which has made the ruble one of the world's most tightly controlled currencies.