The Economics of War

The United States will no longer allow Russia to pay its debts to foreign investors using U.S. banks. This means that Russia could default on payments for the first time since 1998.

But the Russian ruble is up! It is trading at its highest level since 2015 and experts say that it is up 25% since before the Ukraine-related sanctions began. Russia says that it doesn’t need the U.S. to pay its debts and will instead pay them with rubles on schedule.

Why is the ruble doing so well? 

You might recall that when the West started putting sanctions on Russia, Russia started demanding that it be paid in rubles for gas. That especially puts Europe in a bind since Europe is highly dependent on Russian oil. But European leaders had no choice so they are in fact paying in rubles. Technically.

European countries are using a bank called Gazprombank, which does the currency exchange for them. So Europe can “say” that they are paying in Euros but Russia receives its money in Rubles. Gazprombank is a private Russian-owned bank and European countries had to open an account with the bank to comply with these demands.

An Italian economist told The Washington Post that this is “a transaction where everybody saves face.”

Share this article

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on whatsapp
Share on vk
Share on email
Share on reddit

Related Articles

Join the mailing list

Get the daily email that makes reading the investment news actually enjoyable.

Scroll to Top