Rouble collapse raises fears of capital controls

Russia's falling rouble poses a threat to the country's financial stability.

The Russian rouble sank to levels not seen since 1998 this week, reaching a low against the US dollar of 52.5 roubles per dollar. The currency has lost around 42% of its value since the start of the year, battered by sanctions and capital flight caused by the ongoing conflict in Ukraine.

Advertisement - Article continues below

However, oil cartel Opec's decision not to try to stem falling oil prices by cutting supplies was the direct trigger for the latest fall. Russia is among the countries most exposed to declining oil prices: Anton Siluanov, the finance minister, warned in November that it could enter a recession next year if the price of oil fell to $60 a barrel.

Recession now looks a distinct possibility, agrees Larry Elliott in The Guardian. More than two-thirds of Russia's exports are from the energy sector, and the cost of crude has dropped by 40% since the summer.

But if the rouble's slump doesn't stop soon, the risks go beyond a recession. A free-falling currency poses a threat to financial stability in two major ways.

"First, it increases the foreign currency value of Russia's foreign liabilities, worth about £127bn. Second, a continued fall in the exchange rate will encourage Russian citizens to convert roubles into dollars and euros, thus increasing the risk of bank runs."

As such, there are growing calls on the central bank to resume intervening in the foreign-exchange market to prop up the rouble.

It's been abstaining from doing this since early November, when it abandoned its "corridor" policy which involved managing the exchange rate within a trading band in favour of a freely floating currency.

For now, policymakers seem to be turning a deaf ear to these pleas, which suggests they may consider a falling rouble useful for limiting the damage that lower oil prices will cause to public finances, says Neil Shearing of Capital Economics.

Since oil revenues are priced in dollars, a weaker rouble helps offset the impact of lower oil prices in rouble terms. But Russia can't allow the currency to slide in this disorderly manner indefinitely, says Ambrose Evans-Pritchard in The Daily Telegraph. "The risk of emergency exchange controls" is rising.




Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020

The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Most Popular


The end of the bond bull market and the return of inflation

Central bank stimulus, surging post-lockdown demand and the end of the 40-year bond bull market. It all points to inflation, says John Stepek. Here’s …
30 Jun 2020

This chart pattern could be extraordinarily bullish for gold

The mother of all patterns is developing in the gold charts, says Dominic Frisby. And if everything plays out well, gold could hit a price that invest…
1 Jul 2020

House price crash: UK property prices are falling – so where next?

With UK property prices falling for the first time in eight years, are we about to see a house price crash? John Stepek looks at what’s behind the sli…
2 Jul 2020