Prigozhin’s uprising is costing Putin a lot of money. NATO countries agree on a new defense spending target

Expensive uncertainty: the Russian currency, the ruble, is weakening. And clear.

On Wednesday, more than 100 rubles were worth just one franc and the exchange rate for the Russian currency remained at a similarly low level over the weekend. For comparison: at the beginning of the year the exchange rate was still around 75 rubles for one franc.

The ruble has fallen to such a low for the first time since the start of the Russian offensive war against Ukraine. This is a clear warning signal for President Vladimir Putin. Because even the Kremlin can no longer cover up this loss of value.

Officials recently spoke of falling below a significant “comfort zone” against the US dollar. According to Russia’s First Deputy Prime Minister, Andrei Belousov, that is 80 to 90 rubles per US dollar.

However, the Kremlin has already found a culprit for this: Yevgeny Prigozhin.

Increased demand for foreign currency

At the end of June, parts of Wagner’s mercenary unit under his command started an unexpected revolt and even advanced towards Moscow armed. Prigozhin agreed to an agreement and put an end to the uprising, but the action was not without consequences. Since then, many Russians have been restless and apparently want to stock up on foreign currency to protect themselves.

From a Swiss point of view, this also means that the Swiss franc has continued to appreciate against the ruble in recent months, as this chart shows:

Since the uprising, 15 Russian regions have seen significant increases in demand for foreign currency, Belousov said. “On average, it was about 30 percent, but the most active increase in demand for cash was recorded in the southern regions – in Voronezh, Rostov and Lipetsk, as well as in major cities,” he said. “Demand there increased by about 70 to 80 percent.”

In the financial world, this creates ridicule. Benjamin Picton, an analyst at the Dutch Rabobank, writes in an article for the news site “Zero Hedge” that Putin once said that every chief must learn to run the state. “That’s an appropriate observation given what happened over the weekend,” Picton said. “Because a former hot dog vendor, popularly known as ‘Putin’s chef,’ has started a kind of mutiny against the Russian government.”

Failed mediation attempts and arms deliveries

But Prigozhin’s uprising is probably not the only reason for the ruble’s weakening. In particular, the prospect that the war could last longer creates further uncertainty. Recent attempts at mediation by leading politicians from around the world, including an African delegation and the Chinese, have failed.

The Wall Street Journal also reported on possible US arms shipments to Ukraine that could weaken Russia’s position. According to the report, the US is considering equipping Ukraine with the Army Tactical Missile System (ATACMS). This long-range missile would allow Ukraine to hit Russian targets beyond the front lines.

Central Bank: No threat to financial stability

And statements from the Russian central bank also cast doubt on Russia’s economic strength, which in turn depresses the currency. At its meeting in July, the central bank decided to leave interest rates unchanged at 7.5 percent, where it has been for several months.

At the same time, the bank warned that the economy was facing a double blow. There are several “inflation risks,” the press release says. On the one hand, many skilled workers have left the country, leading to a persistent labor shortage. On the other hand, the government is increasing its loans to finance the war.

Deputy head of the central bank Xenia Judaeva tried to calm down on Tuesday. The fall in the exchange rate is related to the reduction in the trade surplus, she said. However, the current development of the ruble does not pose a threat to the country’s financial stability.

China as a lifeline

What does all this mean for the overall economic situation? After all, economic stability is considered an important factor in war – not least to secure funding and keep the morale of the population up.

Observers continue to rate Russia’s wartime economy as stable, as it spends heavily on armaments and aid to the population. But Russia needs increasing access to its currency reserves for financing.

At the start of the war, the ruble quickly recovered as the West bought oil, gas and coal from Russia despite sanctions. In June 2022, the coin even reached its highest point since the start of the war. But with restrictions on energy exports, Russia’s export earnings have fallen. The ruble is now one of the worst performing currencies of the year.

Putin has therefore recently campaigned again to use local currencies for trade, moving away from the established reserve currency, the US dollar. At the joint summit with Chinese President Xi Jinping, he stressed the important trade relations between the two countries. Trading is now mainly in Chinese yuan and rubles, he said. It is uncertain whether this will be sufficient for stabilization.

The first voices in the West are already calling for action rather than allowing it. Former CIA director David Petraeus told CNN that Putin is in a very difficult position. This should be used to increase the pressure. “We have to keep tightening the thumbscrews,” says Petraeus. (t online)

Sources