This week, the US dollar was valued at around 80 Russian rubles, roughly the same exchange rate that existed before Russia invaded Ukraine on February 24. The Russian currency was initially battered by Western sanctions, but it has since recovered. 

One of the sanctions’ explicit goals was to harm Russia’s currency. The ruble is now worth the same as it was before the war. 

The Russians recognise that the goal of the game is to devalue their currency, which was accomplished through central bank sanctions, which were the most dramatic aspect of the new sanctions campaign over the first weekend of the war. As a result, they have made restoring the currency’s value a top priority.

They completely manipulate the Russian currency market because they control it at home. They are restricting the ability of foreigners who have invested in Russia, or anyone else, to sell rubles. 

On the other hand, they are creating artificial sources of demand for the ruble, because the value of the currency is ultimately determined by the balance of demand and supply. As a result, they are increasingly requiring Europeans to pay for Russian gas in rubles, either directly or indirectly. They are requiring Russian exporters who can still earn foreign currency to exchange it for rubles; up to 80% of their export earnings must be converted into rubles.

And each time you do so, you increase demand for the ruble. And, in general, Russia is currently running a massive trade surplus, which is the type of economic position from which you would expect the currency to appreciate. 

They’re taking advantage of all of these tendencies to return the currency to its previous level. 

The fundamental paradox of banks is that they are illusory but stable as long as everyone believes that the money is there and can be obtained if needed. As a result, maintaining the appearance of stability has very real consequences.

The major sanctions that remain on the table are European energy sanctions, and it is clear that Germany is the stumbling block. The public debate there has devolved into a battle over how much damage an energy embargo would cause Germany. 

According to some economists, the damage will be manageable. However, the German government has stated that it would be disastrous, resulting in mass unemployment and the collapse of entire industries. German Chancellor Olaf Scholz has even chastised economists for having the audacity to make predictions using mathematical models.

The German government also claims that Germany’s payments for Russian energy are not fueling the war effort because the Russian government cannot access the funds due to central bank sanctions. 

True, the Russian central bank has been sanctioned, but Gazprombank has not been sanctioned. So that’s how the gas is paid for, and it’s being paid for at an incredible rate. Up to a billion dollars appear to be flowing toward Russia every day, and that money flows into the Russian financial system, around the central bank to some extent, and helps support the Russian financial system. And, because it is converted into rubles, it contributes to the currency’s support. 

What is true, however, is that whether the Russians have the funds or not, they are currently unable to purchase the technological components required to support their war effort. There is a separate set of sanctions aimed specifically at preventing Russia from supporting its war effort. After all, Russia’s economic ship isn’t so tight that they can’t buy bits for the war with money from oil and gas revenues. These are two distinct things. The revenue for the gas is still going to the Russians.

However, the Russians are unable to purchase semiconductors because Taiwan Semiconductor Manufacturing Co. will no longer deliver them. And they are unable to continue domestic production because Mikron, Russia’s leading semiconductor manufacturer, has also been sanctioned. 

Another aspect of this is that the sanctions are almost populist in nature. The kind of cheer that rang through the halls of Congress during President Joe Biden’s State of the Union address, when he said, “We’re going after the oligarchs, we’re going after their yachts, we’re going after their villas.” There’s a real sense of vindictive pleasure in stealing other people’s assets, especially rich people’s.

Taking some Russian yachts out of service undoubtedly helps to reduce leisure carbon dioxide emissions.

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