### Russia Faces Economic Turbulence as Ruble Plummets

The ruble, Russia's beleaguered currency, has recently shown signs of recovery after the central bank's decisive action to halt all foreign currency purchases for the rest of the year. Despite these measures, the ruble remains significantly devalued, with the central bank setting the official rate at approximately 108 to the U.S. dollar on Friday. This is an improvement from the alarming rate of 114 recorded on the spot market earlier in the week, but it still means that one ruble is worth less than a penny.

The ruble has faced substantial depreciation, losing 9% against the dollar since November 21. This decline followed U.S. sanctions imposed on around 50 Russian banks, including Gazprombank—a major player in Russia's currency market. Over the year, the ruble has seen a drastic 20% drop against the dollar. While a weaker ruble could theoretically benefit Russian exports by making them cheaper, it is likely to exacerbate inflation by increasing the cost of imports. Although Western nations have predominantly severed trade ties with Russia, Chinese products have filled the gap, yet the ruble's value has also slid against the yuan.

During the summer, Russian businesses and banks already grappled with a shortage of yuan, which has become the most traded foreign currency in Russia and a vital element for its economy. The ongoing crisis has forced the Kremlin to repeatedly dip into Russia's sovereign wealth fund to uphold the ruble, significantly depleting its resources. Notably, liquid assets in the National Wealth Fund were recorded at $55 billion last month, a sharp decline from $140 billion prior to Russia's invasion of Ukraine in 2022.

Although Russia continues to generate foreign currency through oil and gas sales, the diminishing sovereign wealth fund makes the country increasingly vulnerable to fluctuations in global energy prices, which are currently falling due to weakened global demand. The central bank has the option to further hike benchmark interest rates to combat inflation and create more demand for ruble-denominated assets. However, with rates already at a steep 21%, further increases could place additional pressure on Russia's troubled economy.

On Friday, the central bank stated that no emergency measures would be necessary to support the ruble, following President Vladimir Putin’s reassurance on Thursday that the currency situation was under control. Nonetheless, Russia's ongoing currency crisis contributes to growing skepticism among analysts regarding the sustainability of Putin's military campaign in Ukraine, with challenges such as insufficient production of key weapons systems and diminishing Soviet-era stockpiles.