<p>The primary source of the recent ruble collapse has almost certainly been the falling international oil price, aggravated by some other features of Russian politics and its economy.</p>

<p>Petroleum products account for <a href="http://atlas.media.mit.edu/explore/tree_map/hs/export/rus/all/show/2010/">over half of Russia's export revenue</a>, and most remaining export revenue comes from other commodities, whose output it cannot easily adjust. When oil prices fall, this lost export revenue must be replaced by some combination of</p>

<p>(1) more (presumably non-oil) exports</p>

<p>(2) fewer imports</p>

<p>(3) a larger net capital inflow.</p>

<p>For the most part, these adjustments will be made in response to an equilbrating decline in Russia's exchange rate. Since Russia's export mix is so commodity-heavy, the short run response of (1) to the exchange rate is very weak; since consumers tend to be sluggish in responding to price changes, (2) is weak in the short run as well. For a modern economy with good access to international capital markets, (3) is the main short-term buffer for shocks like these, but Russia is currently suffering from Western sanctions and was not particularly well-integrated into international capital markets in the first place.</p>

<p>For all these reasons, a very large decline in the exchange rate is needed to induce enough of (1), (2), and (3) to offset the decline in oil export revenue. Meanwhile, skittishness about the political situation in Russia (and its dubious historical record on monetary stability) don't help. </p>

<p>By the way, the dependence of commodity exporters' exchange rates on commodity prices is a staple of international finance; it has even been used to <a href="http://dornsife.usc.edu/assets/sites/462/docs/papers/published/CRR09.pdf">forecast commodity prices</a>.</p>

CC BY-SA 3.0
2014-12-11T06:53:45.893Z
2014-12-11T06:53:45.893Z
nominally rigid
<p>The answer by <a href="https://economics.stackexchange.com/users/405/nominally-rigid">nominally rigid</a> very correctly hints at oil prices as one of the major causes. I'd add more details and numbers to this point. A slightly longer version is available <a href="http://antontarasenko.com/2014/12/19/a-brief-history-of-russian-debt/" rel="nofollow noreferrer">here</a>.</p>

<hr>

<h1>1. Russian corporations borrowed in foreign currency when external debt was cheaper than domestic debt</h1>

<p>Paul Krugman <a href="http://krugman.blogs.nytimes.com/2014/12/18/notes-on-russian-debt/?module=BlogPost-Title&amp;version=Blog%20Main&amp;contentCollection=Opinion&amp;action=Click&amp;pgtype=Blogs&amp;region=Body" rel="nofollow noreferrer">pointed</a> at the PPP vs exchange rate changes. I've made a similar plot for absolute values of PPP:</p>

<p><img src="https://i.sstatic.net/OphzE.png" alt="enter image description here"></p>

<p>External debt was cheaper than domestic one until high oil prices supported the ruble. A corporation paid 12-18% annually for ruble-denominated debt and a fraction of this interest for dollar-denominated debt. So, corporations thought it was a good idea to borrow abroad.</p>

<hr>

<h1>2. Russian corporations had to pay this debt under financial sanctions and declining oil prices</h1>

<p>That is, a shortage of foreign currency when private corporations must paid their debts by the end of 2014:</p>

<p><img src="https://i.sstatic.net/DsGCT.png" alt="enter image description here"></p>

<hr>

<h1>3. The Russian Central Bank refused to support the ruble when Russian corporations needed dollars</h1>

<p>The Central Bank held more than half of the balance-of-payment surplus accumulated over 2000-2008, but it marketed only about $100 bn. when multiple factors basically halted the currency influx and someone at home had to put dollars on the table:</p>

<p><img src="https://i.sstatic.net/LqlM9.png" alt="enter image description here"></p>

<hr>

<h1>Finally, when the exchange rates hiked in December, even debt-free entities started buying foreign currency</h1>

<p>Apart from borrowers that sought some $50 bn. for foreign creditors, the market was full of those who tried to buy dollars because exchange rate speculations yielded up to 10% <em>daily</em>. The ruble went into freefall:</p>

<p><img src="https://i.sstatic.net/V8dMK.png" alt="enter image description here"></p>

CC BY-SA 3.0
2014-12-20T07:31:42.877Z
great discussion. shaky foreign-currency lending has a long history of contributing to crises: it creates pressure for a capital outflow in precisely the situations where an inflow is needed.
nominally rigid
CC BY-SA 3.0
2014-12-20T10:55:36.817Z
@nominallyrigid I think, the critical contribution was made by those who didn't need dollars, but decided to invest in the currency as they saw exchange rates increasing. The central bank allowed slow depreciation but lost control in December.
Anton Tarasenko
CC BY-SA 3.0
2014-12-29T07:20:57.253Z
Oh, lot of plots as I like : )
Danil Gholtsman
CC BY-SA 3.0
2014-12-19T22:09:12.110Z
2014-12-19T22:09:12.110Z
2017-04-13T12:51:38.253Z
Anton Tarasenko
<p>The answer is very clear when you look at Russia's monetary statistics. The Central Bank of the Russian Federation has a very good site, and you can see them here:</p>

<p><a href="http://www.cbr.ru/eng/statistics/credit_statistics/MS.asp?Year=2014" rel="nofollow noreferrer">Russian Money Supply (M2)</a></p>

<p>or courtesy of the St. Louis Federal Reserve:</p>

<p><img src="https://i.sstatic.net/1CJKu.png" alt="Russian money Supply"></p>

<p>They provide the annual expansion rate which is nice. Historically, Russia's money supply has always been an extreme outlier compared to other European countries. Compared to the USA's money supply, which roughly doubles every 10 years, Germany which was down at 1.3x/decade last time I checked, Russia's typically increases by 20x a decade.</p>

<p>The open research question is why currencies tend to collapse suddenly, rather than over time, but the underlying reason is always found in their relative expansion rates. I would suspect that this particular episode has also been triggered by the recent drop in oil prices, since that will put additional pressure on oil exporters like Russia, due to the drop in income from exports.</p>

CC BY-SA 4.0
2020-06-15T10:26:46.520Z
Actual till this very day, thank you :)
Danil Gholtsman
CC BY-SA 3.0
2014-12-08T01:49:24.657Z
2014-12-17T17:11:57.403Z
2014-12-17T17:11:57.403Z
Lumi
<p>What are the reasons why the rouble (RUB) is collapsing? Which one is the main one?</p>

CC BY-SA 3.0
2014-12-03T16:38:09.890Z
Hi Danil. Welcome on Economics.SE. To down-voters : please justify your down votes in the comments, chiefly when the question comes from a new user. Even better, discuss why you think the question is a poor one on the meta, e.g. http://meta.economics.stackexchange.com/questions/152/how-to-deal-with-what-are-the-causes-of-economic-phenomenon-x
Martin Van der Linden
CC BY-SA 3.0
2014-12-06T20:07:50.253Z
I'm sure nobody really knows the answer to this question, but it'd be nice to see what arguments (1) have already been made (maybe in the media, if not in academia) and (2) what arguments can be made here. Maybe someone could look up the textbook reasons why any currency can lose value and then argue which of those potential channels seems consistent with what we have observed. Of course, it would always be nice is someone could produce a reference to a quality journal article---something we can trust more than your average EC.SE member. But, I think some good speculation could be had here.
jmbejara
CC BY-SA 3.0
2014-12-18T17:39:47.170Z
Agreed with @jmbejara we have to expect new people to come to this site with questions about current events, and this is a forum, not the JEP.
Jason Nichols
CC BY-SA 3.0
2014-12-19T22:57:13.977Z
Rouble = paper oil
Rusan Kax
<macroeconomics><inflation><currency><russia>
Why is the rouble collapsing?
Danil Gholtsman
# Why is the rouble collapsing?

(Asked by: username_0 on 2014-12-03)

What are the reasons why the rouble (RUB) is collapsing? Which one is the main one?

**Tags:** macroeconomics, inflation, currency, russia
> **Comments:**
> **username_1**: Hi Danil. Welcome on Economics.SE. To down-voters : please justify your down votes in the comments, chiefly when the question comes from a new user. Even better, discuss why you think the question is a poor one on the meta, e.g. http://meta.economics.stackexchange.com/questions/152/how-to-deal-with-what-are-the-causes-of-economic-phenomenon-x  
> **username_2**: I'm sure nobody really knows the answer to this question, but it'd be nice to see what arguments (1) have already been made (maybe in the media, if not in academia) and (2) what arguments can be made here. Maybe someone could look up the textbook reasons why any currency can lose value and then argue which of those potential channels seems consistent with what we have observed. Of course, it would always be nice is someone could produce a reference to a quality journal article---something we can trust more than your average EC.SE member. But, I think some good speculation could be had here.  
> **username_3**: Agreed with @jmbejara we have to expect new people to come to this site with questions about current events, and this is a forum, not the JEP.  
> **username_4**: Rouble = paper oil  

---

## 3 answers

### Answer by username_7 on 2014-12-08. Score: 7 | Accepted answer

The answer is very clear when you look at Russia's monetary statistics. The Central Bank of the Russian Federation has a very good site, and you can see them here:

[Russian Money Supply (M2)](http://www.cbr.ru/eng/statistics/credit_statistics/MS.asp?Year=2014)

or courtesy of the St. Louis Federal Reserve:

![Russian money Supply](https://i.sstatic.net/1CJKu.png)

They provide the annual expansion rate which is nice. Historically, Russia's money supply has always been an extreme outlier compared to other European countries. Compared to the USA's money supply, which roughly doubles every 10 years, Germany which was down at 1.3x/decade last time I checked, Russia's typically increases by 20x a decade.

The open research question is why currencies tend to collapse suddenly, rather than over time, but the underlying reason is always found in their relative expansion rates. I would suspect that this particular episode has also been triggered by the recent drop in oil prices, since that will put additional pressure on oil exporters like Russia, due to the drop in income from exports.

> **Comments:**
> **username_0**: Actual till this very day, thank you :)  

---

### Answer by username_5 on 2014-12-11. Score: 17

The primary source of the recent ruble collapse has almost certainly been the falling international oil price, aggravated by some other features of Russian politics and its economy.

Petroleum products account for [over half of Russia's export revenue](http://atlas.media.mit.edu/explore/tree_map/hs/export/rus/all/show/2010/), and most remaining export revenue comes from other commodities, whose output it cannot easily adjust. When oil prices fall, this lost export revenue must be replaced by some combination of

(1) more (presumably non-oil) exports

(2) fewer imports

(3) a larger net capital inflow.

For the most part, these adjustments will be made in response to an equilbrating decline in Russia's exchange rate. Since Russia's export mix is so commodity-heavy, the short run response of (1) to the exchange rate is very weak; since consumers tend to be sluggish in responding to price changes, (2) is weak in the short run as well. For a modern economy with good access to international capital markets, (3) is the main short-term buffer for shocks like these, but Russia is currently suffering from Western sanctions and was not particularly well-integrated into international capital markets in the first place.

For all these reasons, a very large decline in the exchange rate is needed to induce enough of (1), (2), and (3) to offset the decline in oil export revenue. Meanwhile, skittishness about the political situation in Russia (and its dubious historical record on monetary stability) don't help.

By the way, the dependence of commodity exporters' exchange rates on commodity prices is a staple of international finance; it has even been used to [forecast commodity prices](http://dornsife.usc.edu/assets/sites/462/docs/papers/published/CRR09.pdf).


---

### Answer by username_6 on 2014-12-19. Score: 9

The answer by [nominally rigid](https://economics.stackexchange.com/users/405/nominally-rigid) very correctly hints at oil prices as one of the major causes. I'd add more details and numbers to this point. A slightly longer version is available [here](http://antontarasenko.com/2014/12/19/a-brief-history-of-russian-debt/).

---

# 1. Russian corporations borrowed in foreign currency when external debt was cheaper than domestic debt

Paul Krugman [pointed](http://krugman.blogs.nytimes.com/2014/12/18/notes-on-russian-debt/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body) at the PPP vs exchange rate changes. I've made a similar plot for absolute values of PPP:

![enter image description here](https://i.sstatic.net/OphzE.png)

External debt was cheaper than domestic one until high oil prices supported the ruble. A corporation paid 12-18% annually for ruble-denominated debt and a fraction of this interest for dollar-denominated debt. So, corporations thought it was a good idea to borrow abroad.

---

# 2. Russian corporations had to pay this debt under financial sanctions and declining oil prices

That is, a shortage of foreign currency when private corporations must paid their debts by the end of 2014:

![enter image description here](https://i.sstatic.net/DsGCT.png)

---

# 3. The Russian Central Bank refused to support the ruble when Russian corporations needed dollars

The Central Bank held more than half of the balance-of-payment surplus accumulated over 2000-2008, but it marketed only about $100 bn. when multiple factors basically halted the currency influx and someone at home had to put dollars on the table:

![enter image description here](https://i.sstatic.net/LqlM9.png)

---

# Finally, when the exchange rates hiked in December, even debt-free entities started buying foreign currency

Apart from borrowers that sought some $50 bn. for foreign creditors, the market was full of those who tried to buy dollars because exchange rate speculations yielded up to 10% *daily*. The ruble went into freefall:

![enter image description here](https://i.sstatic.net/V8dMK.png)

> **Comments:**
> **username_5**: great discussion. shaky foreign-currency lending has a long history of contributing to crises: it creates pressure for a capital outflow in precisely the situations where an inflow is needed.  
> **username_6**: @nominallyrigid I think, the critical contribution was made by those who didn't need dollars, but decided to invest in the currency as they saw exchange rates increasing. The central bank allowed slow depreciation but lost control in December.  
> **username_0**: Oh, lot of plots as I like : )  

---

