The Ruble Has Collapsed. Here’s What It Means for Russia.

“Economy and life in Russia will never be the same again,” a Russia historian said.

By Viola Zhou

Photo: Andrey Rudakov/Bloomberg via Getty Images

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Summary of article:

Economic uncertainty has resulted in capital investors selling Russian-related assets or hot money & FDI leaving Russia, since its expected returns on investments will be low and possibly turn negative.

As a result, capital investors are suddenly selling the Russian ruble in bulk in the foreign exchange market, leading to a sharp increase in the supply of the ruble, with a surplus at the original exchange rate that cause a sharp depreciation of the ruble.

The depreciation of the ruble will further increase the price of imports in ruble, increasing cost of production, hence SRAS falls (shifts left/up). Hence cost-push inflation ensues, with fall in real GDP & increase in unemployment.

The trade sanctions will reduce export revenue as foreigners reduce their demand for Russian exports, thus adversely worsening Russia's balance of trade.