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Ruble Puzzle for the Americans

This might be the first time in history that the national currency has become stronger against the world reserve currency post-application of the harshest sanctions possible. When the conflict started and the sanctions were applied, the Russian Ruble traded as high as 120 against one dollar but now it trades at 62 to some extent stronger than before the conflict.

Previous to such sanctions there was a regular outflow of dollars from Russia in terms of bond payments, equity outflow, trade payments, and other forms of payments. But now post-sanctions the only outflow is bond payments and a small portion of other outflows. This has worked at such a swift pace; many would say that it was a scenario well-practiced.

The bond payments were the most crucial and watched payments that might lead to a default and downgrade of the sovereign rating. But at the start, the dollars kept with American banks were used to pay the payments, and later when that was blocked the reserves of central banks were used. This way a default is avoided till now and it has disturbed the Biden administration.

Another strengthening factor came from the gas payment switch to national currency globally. At first many countries in Europe, the main customer was against it but now has started to pay as per the new mechanism.

This has contributed to a positive flow toward demand for the rouble globally. There will be a factor of Central bank intervention at times but it cannot sustain such strength without a natural demand factor.

But will this happen with other countries if acted in such a manner, most probably not? Two factors favour Russia, one is that its main exports are the commodities required by all, and the second is the strong relations with the two largest consuming nations India and China.

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