The ruble has hit the lows hit earlier this week after the central bank halted all foreign currency purchases for the rest of the year, but remains battered – and the means to prevent a further collapse are dwindling.
On Friday, the central bank set the official rate at around 108 for the US dollar. While that’s improved from Wednesday’s 114 on the spot market, it still means one ruble is worth less than a penny.
The ruble has fallen 9% against the dollar since Nov. 21, when the U.S. imposed sanctions on some 50 Russian banks, including Gazprombank, which has emerged as a key lynchpin for Russia in foreign exchange markets. And this year the ruble has fallen about 20% against the dollar.
While this could boost Russian exports by making them cheaper, it is likely to further fuel inflation by making imports more expensive. Even though Western countries have largely cut off trade with Russia, products from China have replaced many imports, and the ruble has also fallen against the yuan.
Over the summer, Russian companies and banks were already struggling with a shortage of the yuan, the country’s most traded foreign currency and a crucial lifeline for the economy.
Meanwhile, Russia’s sovereign wealth fund has been repeatedly used to prop up the ruble, leaving the Kremlin with less firepower to fight another currency collapse.
According to Bloomberg, liquid assets in the National Wealth Fund stood at $55 billion last month just before the latest crash. That’s down from $140 billion before Russia invaded Ukraine in 2022.
Russia can still earn foreign currency by selling its oil and gas, but its shrinking sovereign wealth fund leaves Moscow at the mercy of energy prices, which have fallen due to weakening global demand.
The central bank can also raise interest rates further to combat hot inflation while creating more demand for ruble-denominated assets. But interest rates are already at a sky-high 21%, meaning further increases would further tighten the screws on the Russian economy.
On Friday, the central bank said no emergency measures were needed to support the ruble, after President Vladimir Putin said on Thursday the situation was under control.
The Russian currency crisis comes at a time when analysts have predicted that the economy will not be able to sustain Putin’s war on Ukraine next year. For example, Russian factories cannot produce enough key weapons systems to compensate for battlefield losses, and old Soviet supplies are running out.
This story originally appeared on Fortune.com
