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Why Does the Russian Ruble Decline Amidst The Problems in the Ukraine

The Russian army is moving into the Crimea region which is Ukrainian sovereign territory. All of the political and military pandering aside, the Sberbank moved the exchange rate to 38.50 rubles to Dollar. That’s an unprecedented high. Why is the shift happening?

Two reasons.

1) Nobody wants to buy Russian assets at the moment which means demand for Russian rubles is low. Low demand means no pressure of appreciation against foreign currencies.

But perhaps the biggest reason,

2) Foreign investors and Russians themselves don’t trust the ruble and are moving immediately to dump assets and convert their currency into a safer vehicle. In order to dump Russian currency you need to buy foreign currency buy selling rubles. first. This puts pressure on foreign currency, or rather, floods the market with Russian rubles. More rubles increases supply and depreciates the currency against the dollar (and others like the Euro).

The Russian Central Bank could intervene and try to buy up rubles in an attempt to eat up supply and slow the depreciation of the ruble, but their actions are usually temporary and have little impact overall when this type of currency run happens.

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