Russia Ruble, Gold Reserve Purchases, Depressed Oil Prices

Russia's ruble has made financial news as of late, just as their conflict with their neighbor, Ukraine, has been frozen in the last month or so. Western sanctions have had a profound effect on Russia's monetary policy and the value of its currency, the ruble. According to the latest data, they have made another currency intervention by purchasing ruble from its mostly dollar-denominated currency reserves. This has been done to keep the ruble from falling even further down versus the US dollar, due to US and Western sanctions on key sectors of the Russian economy. This event coupled with falling oil prices have marked a perfect storm for Russia, but Russia has silently been buying up gold reserves. Does this mean that Russia will attempt to entirely decouple from the Western financial system? The answer is probably no, but they are slowly moving away from basing their international trade activities on the US dollar.

I have compiled two charts from Bloomberg that illustrate the falling ruble and the Russia's foreign exchange reserves, which includes gold.

By looking at these Bloomberg charts, we can see that Russia's ruble has weakened from around 36 Russian rubles to one US dollar to about 41 to 1. There is sharp drop in the value of their currency, coupled with the sustained drop in their official foreign exchange and gold reserves from $500 billion dollars to about 450. While these official estimates might not be realistic, especially due to Russia's resurgent gold bullion purchases, they mark a country mired in recession due to Western sanctions and the costly war with Ukraine. Russia has emerged as officially the country with the 5th largest currency reserve in the world, which fuels speculation of their real motives. Along with China, Russia has been purchasing gold bullion at record amounts, could they be underestimating their real gold bullion numbers? We do know that their $13 billion worth of currency interventions this month shows real weakness in the value of their currency, but does this indicate that Russia is in a free-falling economy or does it have to do with Western sanctions? I think it has more to do with strongly falling oil prices since the ruble is, in my opinion, more or less a petro-ruble, similar to other petroleum-based currencies. This could change if they continue with their gold reserve purchases and changes in central bank policies. Could this be a gold-backed ruble?

By looking at the sudden drop oil prices, which reached a peak of about $105 (WTI) and $115 (Brent), oil has taken a sharp dive and prices hover around $82 (WTI) and $86 (Brent). This sharp correction has also influenced Russia's currency reserves and the price of its currency, which means sharp economic and budget problems for the Kremlin to handle. If this slide continues and coupled with more debt downgrades by S&P and Moody's, we could see Russia's currency sink further and will require more further currency interventions. Could we see Russia's central bankers make more aggressive monetary decisions regarding the state of its falling currency? In the future, there is very much reason to believe that they might discard SOME if not ALL of their US dollar-denominated assets. Could this also lead to a more politically and militarily belligerent Russia? We will have to wait and see what unfolds...