Russian currency rebounds after Moscow orders gas payment in gold-pegged ruble

After falling steadily for days after Russia’s invasion of Ukraine, the ruble – Russia’s currency – is back despite tough Western sanctions against Moscow. On April 1, the ruble was pegged at around 82 to the US dollar whereas before the invasion the currency was trading at around 76 to the dollar.

Less than a month ago, on March 7, the ruble recorded a new low of around 137 per dollar.

Although several outlets, including Reuters, have said the ruble’s dramatic rebound does not mean “the sanctions-ravaged Russian economy is out of the woods”, analysts told India Narrative that Moscow may have pulled out a rabbit from the hat.

In an effort to support the ruble, the Russian Central Bank announced the peg of the currency to gold – one gram of gold is currently pegged at 5,000 rubles. This move should increase the flow of gold into the Russian Central Bank’s pool.

With Russian gold under sanctions, the country’s gold stocks, both banks and individuals, could be sold to the central bank. The value of the ruble will rise again as central bank gold stocks from domestic sources increase, which is likely to happen in the coming months.

In addition, Russian President Vladimir Putin also signed an agreement under which foreign buyers will be required to pay the ruble for the purchase of gas. Even European countries – especially smaller ones – have already started paying the ruble to buy Russian gas.

Any currency backed by gold is perceived as more stable and stronger.

Russia’s gold reserves are estimated at over 2298.53 tons. It is the fifth largest in the world, the United States ranks first, followed by Germany, Italy and France.

“Given that payment will have to be made in rouble, demand for the currency has increased significantly…we expect this trend to continue,” said Royce Vargheese Joseph, Research Analyst – Money and Energy, Anand Rathi Shares and Stock Brokers.

“The flow of gold to the Central Bank may take some time, but the impact of trading the ruble for buying gas will be immediate,” Joseph said.

The State Bank of India said in its report that pegging the currency to gold would also help stabilize domestic inflation.

“The move should anchor confidence in the currency, as the sanctions have led to a sharp increase in domestic demand for precious metals – gold and palladium,” he said.

Anna Koroleva, a veteran Russian journalist, told India Narrative there was no panic in the country. “The Central Bank has huge gold and currency reserves, the banks are operating as usual. Now no one withdraws anything from ATMs, plastic cards work,” she said.

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