Western sabotage of the Russian economy causes rouble to crash

© Alexander Demianchuk/Reuters

A board displaying currency exchange rates in St Petersburg, Russia.

Russia's economic difficulties intensified on Friday as the beleaguered rouble crashed during morning trading, stoking fears that the country was on the verge of a full-blown currency crisis reminiscent of the 1990s.

The rouble has fallen steadily in recent months amid rising tensions with the west, but it took a dramatic downward lurch earlier this week, plunging more than 10% in 48 hours.

The instability of currency is reviving uncomfortable memories among Russian people, many of whom suffered after the country's default in 1998 when savings were wiped out and queues formed at exchange points as the rouble was dramatically devalued amid spiralling inflation.

Economic problems in Russia even threaten to undermine the power base of the president, Vladimir Putin, who has built his political reputation on a promise of stability, the restoration of Russia's great power status and rising living standards. He has made few public comments about the rouble since declines began to accelerate last month.

As the rouble dropped on Thursday there was a growing physical shortage of dollars and euros in Moscow's banks and exchange points, according to Russian media.

The rouble's weakness has been exacerbated by the Kremlin's hardline stance over the crisis in Ukraine, which has caused investors to flee Russia, fearing a new cold war.

Western sanctions on Moscow for its annexation of the Ukrainian region of Crimea and support for pro-Russia rebels fighting the Kiev government have shut out Russian companies from western capital markets, forcing large debt repayments and prompting fears of a slow-motion credit crunch.

Once grouped with other dynamic emerging market economies, the Russian economy is now teetering on the brink of recession. Driven by fast-rising food prices, inflation has jumped to above 8% this year while capital flight is at levels not seen since the 2008 financial crisis.

Dependent on the tax revenue generated by commodity exports,Russia has also been hit by an oil price that has slid over 25% since June and is now hovering at a four-year low.

The rouble's troubles in recent days were triggered on Wednesday by a decision by Russia's central bank to cease its artificial support for the currency, reversing a policy of 15 years that mandated unlimited interventions on the market to hold the rouble within a certain price range.

In a statement this week, the central bank said that it would now only intervene to prop up the rouble if there were a threat to financial stability. Amid rumours of an emergency meeting of financial policymakers on Friday, experts said the bank had to act to preserve its credibility.

"The longer the regulator waits the harder it will be to find a solution able to stabilise the market, " said Dmitry Polevoy, chief economist for ING Bank in Russia. "Panic amongst the population is difficult to stop."

Comment: There's no doubt about it - a World War is playing out and the West has the hubris to believe that it can win through proxies, whether economic or "terrorist" or "Neo-Nazi". But while waging war by deceit might help bring the house crashing down, integrity is required to rebuild it. As Putin stated:

Paul Craig Roberts: Vladimir Putin is the leader of the moral world

Let's ask ourselves, how comfortable are we with this, how safe are we, how happy living in this world, and how fair and rational has it become? Maybe, we have no real reasons to worry, argue and ask awkward questions? Maybe the United States' exceptional position and the way they are carrying out their leadership really is a blessing for us all, and their meddling in events all around the world is bringing peace, prosperity, progress, growth and democracy, and we should maybe just relax and enjoy it all?

Let me say that this is not the case, absolutely not the case.

...

Colleagues, given the global situation, it is time to start agreeing on fundamental things. This is incredibly important and necessary; this is much better than going back to our own corners. The more we all face common problems, the more we find ourselves in the same boat, so to speak. And the logical way out is in cooperation between nations, societies, in finding collective answers to increasing challenges, and in joint risk management. Granted, some of our partners, for some reason, remember this only when it suits their interests.

Practical experience shows that joint answers to challenges are not always a panacea; and we need to understand this. Moreover, in most cases, they are hard to reach; it is not easy to overcome the differences in national interests, the subjectivity of different approaches, particularly when it comes to nations with different cultural and historical traditions. But nevertheless, we have examples when, having common goals and acting based on the same criteria, together we achieved real success.