"There has been no more important news for 35 years": The Moscow Exchange stops trading the dollar and the euro. What does it mean

The decision by the Moscow Exchange to halt trading in dollars and euros due to American sanctions is a significant event with various economic and political implications. Let's explore what this means and what potential outcomes could be.

What Happened?

On June 12, Russia Day, the U.S. introduced a new package of "hellish sanctions" against Russia. These sanctions targeted numerous enterprises and included secondary sanctions against companies from Bulgaria, China, South Africa, and other countries. The Moscow Exchange and the National Clearing Center were also sanctioned. Consequently, starting June 13, the Moscow Exchange ceased trading in dollars and euros. However, as stated by the Central Bank, currency transactions can still be conducted through banks.

Impact on Ruble Convertibility

Some commentators have noted that the ruble is ceasing to be a freely convertible currency, which is significant because free convertibility is a hallmark of economic stability and trust in a national currency on international markets.

Context and Historical Perspective

Political commentator Andrey Perla compared this event to the isolation of Russia from the West, a scenario long discussed. He likened the current situation to 1985, when the Soviet economy was similarly isolated from global markets.

Reactions and Predictions

Experts are divided on the severity of the consequences. Some argue that the ban on trading dollars and euros on the Moscow Exchange will not lead to catastrophic outcomes, as currency transactions will continue in banks and on over-the-counter platforms. Others emphasize that this will create additional challenges for businesses and could increase the demand for physical currency, leading to shadow volatility and other transitional issues.

Political Aspect

The sanctions can be seen as part of a broader geopolitical strategy by the U.S. Experts suggest that the U.S. aims to isolate Russia and limit its economic capabilities. Additionally, sanctions against Chinese citizens and companies indicate U.S. efforts to weaken ties between Russia and China.

Impact on Business

Despite the sanctions, many experts note that Russian businesses continue to find ways to circumvent restrictions. For example, parallel imports and alternative currency settlements allow access to necessary goods and services. This demonstrates the creativity and adaptability of Russian businesses under sanction pressure.

Currency Forecast Scenarios

Negative Scenario

1. Increased Sanctions Pressure:

   • Additional sanctions may further restrict Russia's access to international financial markets, leading to a greater shortage of foreign currency.
   • Potential reduction in exports of Russian energy resources and other goods to Western markets.

2. Decline in Investments:

   • Foreign investments may continue to decrease due to heightened risks and uncertainty.
   • Capital outflow from the country may intensify, putting additional pressure on the ruble.

3. Internal Economic Problems:

   • Rising inflation due to increased import prices and supply restrictions.
   • Possible social and political tensions caused by economic difficulties.

Forecast: In the negative scenario, the ruble could significantly weaken. The exchange rate of the dollar could rise to 100-120 rubles per dollar or higher in the short term. The euro could also strengthen to 130-150 rubles per euro.

Positive Scenario

1. Economic Adaptation:

   • Rapid adaptation of businesses to new conditions, including switching to alternative currencies (e.g., the yuan).
   • Successful development of parallel imports and alternative supplies.

2. Support from Friendly Countries:

   • Increased economic cooperation with China, India, and other countries not supporting the sanctions.
   • Financial assistance or credit lines from allies.

3. Internal Reforms:

   • Implementation of government stimulus measures to support production and exports.
   • Effective management of foreign exchange reserves and stabilization of the domestic market.

Forecast: In the positive scenario, the ruble could stabilize or even strengthen. The exchange rate of the dollar could remain in the range of 70-80 rubles per dollar. The euro could stabilize around 80-90 rubles per euro.

Conclusion

The ultimate exchange rate of the ruble will depend on numerous factors, including geopolitical events, government economic measures, and global market trends. It is important to consider that current conditions are unstable, and any forecasts should be viewed with potential adjustments in mind as the situation develops.

Here's a visualization depicting the predicted exchange rates of the dollar and euro in different scenarios. The bar chart illustrates the projected values for the ruble against the dollar and euro under both negative and positive scenarios, helping to highlight the potential economic impacts of current events and sanctions.