The rouble breaks 100 to the dollar

On Monday 14 August 2023 the Russian rouble fell below the symbolic figure of 100 per dollar, with lows close to 101 or 102 depending on the source, its weakest level in about sixteen months. The currency, which only a few months ago traded well below that figure, has lost a lot of value in a short time, and has done so despite the restrictions on capital movements that Moscow has kept in place since 2022.

This is not only a Russian story. A weak rouble makes the country’s imports more expensive, feeds its inflation and puts pressure on the central bank, and it is a thermometer of the real impact of sanctions on an economy highly dependent on raw-material exports. For European companies it is also a reminder that exposure to Russia, direct or indirect, still demands legal and financial attention.

What lies behind the fall

Sources agree on two main factors: the effect of Western sanctions on the country’s exports and trade balance, and higher military spending, which raises imports and the public deficit. With a less favourable trade balance and more roubles created to fund spending, the currency loses value against the dollar. Added to this is the distrust of investors and residents, who tend to seek refuge in strong currencies.

The currencies of sanctioned economies move to their own logic: the official exchange rate may be unrepresentative, transactions are heavily limited and much trade is channelled through third countries. That is why it is wise not to draw hasty conclusions from a single figure, however round and eye-catching. Nor should it be forgotten that the currency also depends on its central bank’s rate policy, domestic inflation and income from energy sales; sanctions are an important factor, but not the only one, and their exact weight is hard to isolate.

Effects outside Russia

For most European companies and families the direct effect is small: the rouble weighs little in euro-area foreign trade, and the European financial system has in general reduced its exposure since 2022. The most visible effects arise on three fronts: companies that keep subsidiaries, contracts or receivables in Russia, those that depend on intermediaries in third countries and investors whose portfolios include assets linked to that market.

In economic terms, a weak currency makes Russian imports dearer and favours its exporters, and it may push the authorities to take measures to support it. Any such decision should be followed with caution, because in sanctioned economies the rules change quickly and the effects on contracts and payments can be immediate.

What to review

Companies with business relationships with Russia, with Belarus or with intermediaries in third countries should review their sanctions compliance: the list of persons and entities subject to restrictions, the prohibited products and technologies and the contract clauses that allow operations to be suspended or terminated. Liability for a breach can also reach those who take part indirectly or try to circumvent the measures.

Those with outstanding receivables or contracts in roubles should assess the currency risk and the real possibilities of collection and transfer. For families, the move requires no decision in itself; if there are investments exposed to that market, they should be reviewed with an adviser. This note is general information, not an investment recommendation.

A round number in an exchange rate says little on its own; what matters is what it tells us about the economy behind it.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.