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Russia’s Demand for Payment in Ruble Strengthens USD/RUB

Ruble prices recovered by 41% to $92.47 on March 23, when President Putin asked countries to make payment for gas in Rubles, strengthening the USD/RUB.

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USD/RUB Gains 41% as Putin Demands Payment for Gas in Ruble

The Russian Ruble was trading at $82 levels in the last week of February. The Russian invasion of Ukraine weakened the Ruble, by which it lost almost half its value within a few days.

President Putin took immediate steps to protect the Russian currency, demanding payment for Russian gas in Ruble. The USD/RUB strengthened almost 41.47%, as the currency pair surged to 92.47 on March 23.

The USD/RUB is currently trading at $104.00 on Friday, March 25, 2022.

The USD/RUB currency pair slid to the lowest levels to $158 on March 7. The Ruble weakness arises from severe sanctions imposed by the western countries on Russia. The US and other western countries have issued economic bans on Russia for waging war against Ukraine.

USD/RUB to $104 on Friday, March 25, 2022
USD/RUB to $104 on Friday, March 25, 2022

Foreign Debts Accumulate Weakening the Ruble

Russia has a foreign debt of around $2.2 billion due on April 4. The last payment of $117 million was paid last week, amid the crisis prevailing in the country.

Russia faces severe financial stress as financial and economic sanctions pile against Russia. The central bank of Russia has a foreign debt pile-up on the sanctions imposed on it. The bank has more than $640 in foreign reserve that is not usable.

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If Russia is unable to pay its debt and honor its bills, the country will enter into default. Inability to make a debt payment on time will damage the Russian reputation. Further, investors and institutions will face heavy losses. The Ruble is under pressure with the financial instability in the country.

Russia Demands Payment in Ruble

Russian President Vladimir Putin forces the EU to make payment in Rubles for the gas imports from Russia. Putin says that the gas supply will continue without disruptions to the European Union, but the payment must be in Rubles. The Ruble strengthened on March 23, on the announcement from Putin.

Western countries imposed sanctions on Russia, hoping to halt the Russian attack on Ukraine. The country faces a heavy financial crisis from the escalating sanctions imposed on it.

The European Union faces an energy crisis, the worst since the 1970s.  Energy prices rose almost 30% after Russia asked for payment in Rubles. Natural gas prices are soaring.

Putin hopes to prop up the sliding Ruble value by asking other countries to make the payment in the Russian currency.

The Western countries raised sanctions on Russia. The US and the EU made the payment for gas imports in the US Dollars or Euro. Russia is the largest exporter of natural gas, and Germany and Italy are its chief importers. Europe gets almost 40% of its gas supply from Russia. The German Chancellor Olaf Scholz says that if there is a supply crisis from Russian gas, it will hurt the economy. Germany responds to the demand for payment in Rubles stating that it is a “breach of contract”.

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Russia considers many countries unfriendly, such as the US, the European Union countries, Japan, Norway, and Switzerland. All unfriendly countries must pay in Russian Rubles, says the President.

Despite the Russian invasion of Ukraine, many countries in the European Union depend on Russian gas.

Gold Transactions Prohibited

Russia has a massive gold stockpile stashed up for emergency purposes. It holds almost 2,300 tons of yellow metal. The country intends to sell its gold assets, but the US prohibits any kind of transaction with Russia, including gold.

Gold in Russia and Ukraine saw strong demand as citizens preferred to protect their wealth during the war crisis. Ukraine citizens are fleeing from their home country to protect their lives, giving preference to stash their wealth in gold. The swift slide in the Ruble prices makes Russians switch over to gold to protect their investments.

Russian War Update

Russian rockets strike many parts of Lviv as the war on Ukraine rages for more than a month. People are fleeing from their hometowns as the war escalates in Ukraine. More than 3.7 million Ukrainians have fled the country, and 6.5 million are displaced.

Ukraine bravely repulses attacks from the Russian army. The Ukraine troops launch counterattacks against the Russian forces, but they lack military powers.

The US Dollar strengthened to $99.42 on March 7 and slid to $98.48 on March 17. It is currently trading at $98.82.

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The EUR/RUB currency pair slid to $172.57 on March 7 and closed at $114.22 for the week ended Friday, March 25, 2022. The Ruble strengthened against the Euro on the announcement from Putin for payment in Ruble. Increasing gas prices add to the burden of high inflation prevailing in the European Union. European regions, especially Italy and Russia face energy crises, and gas prices are rising higher.

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