Rouble collapse raises fears of capital controls

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.

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.

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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.