After new Western sanctions were imposed in response to Russia invading Ukraine, the ruble appears to be on the verge of collapse. The sanctions aim to limit the Russian central bank’s access to its massive foreign currency reserves (about $630 billion in U.S. dollars), and it will remove several of the country’s main banks from the SWIFT payment messaging system, isolating the Russian economy. The official exchange rate of the ruble, as of Sunday night, was over 84 rubles to the dollar, while one online bank gave an unofficial exchange rate of 152 rubles. As trading markets opened Monday, the exchange rate dipped by almost 30 percent before stabilizing at about a 20 percent loss.
The central bank continues to try to soothe investors’ and depositors’ worries. It claims it has been planning for this. It promises that it can maintain liquidity and that the domestic payment messaging system — developed as a fail-safe after Russian President Vladimir Putin invaded Crimea in 2014 — will allow credit cards to work even if the banks are cut off from SWIFT. It has supplied extra cash to ATMs. But that has clearly not calmed those standing in hours-long lines to pull money out of the bank.
Such experiences are nothing new to Russians. They have had to act quickly in these kinds of economic crises before. The ruble has repeatedly collapsed in Russian history, taking people’s savings with it and leaving them to contend with the fallout. In the Soviet era, the weakness of the ruble contributed to low living standards and, over time, undermined popular support for communism itself. As in the past, Russia’s ordinary citizens will shoulder this war’s direct and indirect consequences for the value of their money.
During World War I, Tsarist Russia’s economy was wracked by hyperinflation caused, in part, by excessive currency printing. As the war bled into the Russian Revolution and then into civil war, the Bolsheviks deliberately brought on the ruble’s collapse by printing even more money. They did so to try to annihilate the bourgeoisie’s power and bring the country one step closer to the utopian money-free economy promised by Karl Marx. Bank notes became so large, and so useless, that the million-ruble notes were sometimes called “lemons” (limony, a play on miliony). This caused everyday hardships for the very workers whose lives the socialist revolution was supposed to improve, who often responded by walking off the job.
The Bolsheviks quickly realized this was an unsustainable strategy and reversed course. They launched a currency reform that introduced a new ruble for domestic use and a gold-backed currency, the chervonets, for foreign trade. By the end of the currency reform, the 1924 ruble was worth 1/5,000,000 of a 1922 ruble. This helped to stabilize the money economy and workers’ wages and living standards.
As he rose to power, Joseph Stalin argued that the country needed a strong currency, especially as a labor incentive. Yet unacknowledged inflation still affected the money economy he created because the government continued to resort to excessive currency printing. The ruble’s purchasing power remained severely limited heading into World War II. In the meantime, anybody caught holding more stable foreign currencies could be accused of “speculation,” a catchall term for economic crime that warranted steep penalties.
Immediately after Nazi Germany attacked the Soviet Union in June 1941, the ruble collapsed yet again. A halt on withdrawals was announced to prevent a run on the banks, allowing citizens unlimited withdrawals only from funds deposited subsequently. Deposits all but ceased. The purchasing power of the ruble was decimated because of shortages and rationing, and further limited by the government quadrupling the money supply to cover war expenses. Money became much less important than goods to barter, with access to scarce food and resources distributed through workplaces. Prices in what was left of the free market skyrocketed.
The currency reform of December 1947 aimed to take excess cash out of circulation and penalize war profiteers. But news of it was leaked in the days leading up to the reform, first to Communist Party members who took full advantage of this knowledge. This led to a run on the banks, then a run to the banks, after it was revealed that a better exchange rate would be given to savings. People rushed to invest old cash rubles in material goods and nonperishable foods before they lost 9/10 of their value overnight. The reform allowed the state to renege on much of its debt to the population after years of semi-forced investments in state bonds. Ordinary people lost millions of rubles as their savings were “converted.”
Stalin’s successor, Nikita Khrushchev, revalued the ruble once again in 1961, scaling all transactions down by a factor of 10. Unlike in 1947, this plan was announced well in advance and citizens were promised no losses. Regardless, they lost out because of the way prices and wages were rounded. Market prices rose again. Citizens pulled their money out of the banks and invested in goods, with ripple effects for the already-low consumer supply.
After a period of relative prosperity under Leonid Brezhnev, the country’s economic problems could no longer be glossed over under Mikhail Gorbachev. As his perestroika reforms upended the planned economy, the ruble’s purchasing power tanked again, necessitating money rationing in some areas and another currency reform in January 1991. If they could get their hands on them, many citizens preferred to hold their savings in the dollars that began to enter the country as it opened up. When the Soviet Union collapsed in December 1991, it took many citizens’ savings with it. Some Russian citizens have since taken the government to court to recover their losses.
The ruble was insulated from external economic shocks during the Soviet period. It finally became convertible in 1992. Russia launched another confiscatory currency reform in 1993 amid the dismantling of the “ruble zone,” aiming to stop newly independent post-Soviet states from using, and undermining, the ruble.
The ruble’s exchange rate was nevertheless extremely volatile in the 1990s. Goods were often priced in both rubles and dollars because of its unpredictable value. Russians often transacted and saved in hard currencies to avoid losses. The ruble then crashed in 1998 because of an escalating balance-of-payments problem and the knock-on effects of the Asian financial crisis. Russians lost out yet again, as the ruble was devalued.
The most recent collapse occurred in 2014 when the ruble’s exchange rate to the dollar plummeted from the mid-30s to around 80 in December that year because of falling oil prices, the impact of Western sanctions over Russia’s annexation of Crimea and the start of the war in the Donbas and declining investor confidence. ATMs stopped dispensing dollars. Some popular foreign firms in Russia, like Ikea, even stopped selling certain products there because of the currency’s volatility.
At the time, the Russian central bank stopped the ruble’s free fall by propping it up with hard currency reserves it gained by selling off assets. Although today’s sanctions aim to limit the Central Bank’s ability to deploy this strategy, the Russian government is promising its citizens that they will not lose big once again. It raised the interest rate Monday from 9.5 to 20 percent partly in an attempt to “protect citizens’ savings against depreciation.”
Decades of failed promises about the value of the ruble sapped popular confidence in communism and in Soviet and post-Soviet power. It remains to be seen if the Central Bank can live up to its promise that Russians’ rubles will not be affected by sanctions, and if not, what effect this will have on confidence in the Putin regime.
Alongside sanctions on the banks, there has been much talk in recent days about sanctioning Russian oligarchs by going after their wealth and property abroad, as well as their notorious “golden passports.” Ordinary Russians’ economic lives are also now more intertwined with the rest of the world than in any previous era: they travel abroad, order goods online, pay with Visa and Mastercard and shop in foreign chains and ‘hypermarkets’ that will find it harder to do business in Russia going forward. They stand to suffer a massive dip in their living standards.
Back in 2014, on the day the ruble collapsed, the website “Russian Zen” was launched, displaying the ruble’s declining exchange rate and the price of a barrel of crude oil against a looped image of crashing ocean waves set to new age music.
The website still displays exchange rates and oil prices, with the same calming soundtrack, but it now features the statement “No to War!” and a yellow and blue landscape of wheat fields. It also has a clock listing how long Vladimir Putin has been in power. That clock may soon run out if the Russian government’s economic promises to the Russian people are broken another time.