Monday (28/2/22), the Russian currency, the Ruble, was observed to have fallen drastically. The ruble plunged into 106.01 per dollar in Moscow and closed Wednesday (2/3/2022) at 106.02 after hitting a record intraday low of 118.35, recording a drop of more than 10% on the day. This decline is a result of the war that occurred between Russia and Ukraine, where countries in the world impose economic sanctions on Russia. A series of sanctions in the form of blocking major Russian banks from the international payment system or the Society Worldwide Interbank Financial Telecommunication (SWIFT)––a system that migrates billions of dollars from thousands of banks and other financial institutions around the world––comes from large and superpower countries, such as the United States and Europe. The impact of this blocking has prompted old Russian investors to seek new investment asylum to new safer zones, namely the yen and the US dollar.
In addition to the Ruble's fall, shares in major Russian banks also slumped as a result of sanctions imposed by western countries. Share price of Sberbank––Russia's largest lender––down 95% on the London Stock Exchange on Wednesday (2/3/22) to trade at $0.01. This fall marked the lowest point in Sberbank's share price which led to its withdrawal from the European market. A spokesman for Sberbank stated that it, in particular its European subsidiaries, had experienced abnormal cash outflows following the Russian invasion of Ukraine. Apart from Sberbank, major Russian stocks, including Novatek, Lukoil, and Rosneft, also experienced similar declines. In order to stabilize financial markets, the Central Bank of Russia intervened in the foreign exchange market and also expanded the Lombard list. Apart from Russian stocks, global stocks also experienced a similar decline to the Jakarta Composite Index (JCI), where the JCI recorded a fall into the red zone with a decline of nearly 2% on Thursday (24/2/22). US stock markets were also sluggish, with the Dow Jones Indus AVG, S&P 500 Index to Nasdaq Composite slumping.
The sharp devaluation undergone by the Ruble has the potential to cause inflation and will most likely result in a bad impact on the Russian population who are likely to be suffocated by the prices of the soaring goods. Prices for homemade products, which are mostly imported, will skyrocket and the cost of traveling abroad will increase. In addition to inflation, the stock market could be in danger of closing. This economic downturn could also affect Russian military operations, with possible pressure on the smooth running of the operation. Russia's internal economic turmoil is expected to worsen shortly as the ruble's slumping value and falling stock prices forced supply activity to stop as a result of low demand.
