Ruble Trade Agreements & Shifting Winds
As someone who is fascinated with the financial markets and macroeconomics in general, it has felt like an exercise in futility to try keeping up with recent developments in global trade.
In the previous piece, I described a “paradigm shift in the Global and US economies”, but there is so much we can add to that frame of thought after the past few weeks. Let’s jump in, shall we?
The Russian ruble, which was dubbed “rubble” by Joe Biden a few short months ago, has been the world’s top performing currency this year. In fact, as of today the ruble is roughly 30% stronger against the US dollar than it was before Russia invaded Ukraine.
But that’s just the tip of the iceberg.
We’ve also been witnessing increased demand for Russian energy and other commodities, and successful new agreements between major countries reliant upon Russia’s exports. Commodities are usually priced in US dollars (technically speaking, that statement is bit of an over-simplification, but accurate for the purposes of understanding the shifting dynamics we are exploring).
Image source: Samuel Bailey (sam.bailus@gmail.com), CC BY 3.0 NZ <https://creativecommons.org/licenses/by/3.0/nz/deed.en>, via Wikimedia Commons
There is a bit if a “flywheel" effect to what we are witnessing, as Russia has the leverage to demand their exports be purchased in their own currency, the ruble in many of these new or renegotiated agreements. This also increases demand by foreign countries to allocate a larger portion of their foreign exchange reserves in the ruble in order to satisfy these agreements and receive Russian energy or other critical commodities.
Here are just a few headlines (along with the publication title and date for your reference), but I would encourage you to go to the sourced articles if you feel compelled or intrigued by the finer details (full URL to each article can be found in the sources section, as always):
Germany & Italy Allow Companies To Open Ruble Accounts For Russian Gas Payments, Republic World (5/21/2022)
India looks to boost non-dollar trade with Russia, Malaysian Sun (3/15/2022)
Italian PM Draghi Now Supports Ruble Payment Scheme for Russian Gas, OilPrice.com (3/11/2022)
We can also see that Russia’s projected earnings, from energy alone are projected to be more than double the earnings back in 2020.
There are still some holdouts, like Poland however:
Poland ends deal to receive Russian gas after rouble dispute (Reuters, 5/23/2022)
(in writing this article, I found that both ‘ruble’ and ‘rouble’ are acceptable in English, an unrelated factoid for any OCD readers who were troubled by the discrepancy)
Time will tell how that will work out, but clearly we are in the early innings of this Paradigm Shift many analysts and investors are still wrapping their heads around.
Worthy of mention, the China’s yuan is also making waves:
Yuan Jumps After Report on Saudis Weighing Its Use in Oil Deals, Bloomberg (3/15/2022)
Israel adds China's yuan for the first time ever while cutting its dollar holdings in biggest currency reshuffle in a decade, The Deep Dive (3/15/2022)
Meanwhile, stateside here in the US, we have bigger fish to fry. An unprecedented baby formula shortage, caused directly by government regulation and favoring certain manufacturers (*cough* Abbott Labs), has parents across the country worried sick. Of course, the purely altruistic bureaucrats will do everything in their power to try to point fingers and provide a “solution” so parents can rest more easily again (at an undetermined future date). The sound bites and campaign ads are already being brainstormed, I’m sure!
Also, a Federal Reserve nominee who “cruised” through his confirmation hearing, openly admitted “he’s no expert in macroeconomics”. Needless to say, many concerned citizens are losing faith in the institutions that govern them (a trend that is likely to continue if I had to guess).
With all that said, I myself am trying to take a less cynical perspective on things, even during these bizarre (and often, quite frustrating) times to be living through.
I hope readers found value in this piece, or any of the sourced articles you can find below. Until next time,
Paradise Lost Financial
Twitter: https://twitter.com/riskytatertots
Archived Podcast Episodes: https://anchor.fm/paradiselostfinancial
Sources/Links:
Germany & Italy Allow Companies To Open Ruble Accounts For Russian Gas Payments
https://www.republicworld.com/world-news/russia-ukraine-crisis/germany-and-italy-allow-companies-to-open-ruble-accounts-for-russian-gas-payments-articleshow.html
Russia's ruble is the world's top-performing currency against the dollar but traders are revolting against Moscow's capital controls
https://markets.businessinsider.com/news/currencies/dollar-vs-ruble-is-russia-currency-worlds-top-performer-traders-2022-5
Russia’s Yearslong Quest to Quit Dollar Eases Impact of Sanctions
https://www.bloomberg.com/news/articles/2022-02-24/russia-s-years-long-quest-to-quit-dollar-is-blunting-sanctions
Italian PM Draghi Now Supports Ruble Payment Scheme for Russian Gas
https://oilprice.com/Latest-Energy-News/World-News/Italian-PM-Draghi-Now-Supports-Ruble-Payment-Scheme-for-Russian-Gas.html
Caught Between a Rock and a Hard Place: India Mulls Importing Russian Gas Despite Ukraine Crisis
https://thedeepdive.ca/caught-between-a-rock-and-a-hard-place-india-mulls-importing-russian-gas-despite-ukraine-crisis/
Israel adds China's yuan for the first time ever while cutting its dollar holdings in biggest currency reshuffle in a decade
https://news.yahoo.com/israel-adds-chinas-yuan-first-133259326.html
India looks to boost non-dollar trade with Russia
https://www.malaysiasun.com/news/272390698/india-looks-to-boost-non-dollar-trade-with-russia
Yuan Jumps After Report on Saudis Weighing Its Use in Oil Deals
https://www.bloomberg.com/news/articles/2022-03-15/yuan-surges-after-report-on-saudis-accepting-currency-for-oil
Ruble surges as Russia considers looser capital controls
https://www.aljazeera.com/economy/2022/5/23/ruble-surges-as-russia-considers-looser-capital-controls
Poland ends deal to receive Russian gas after rouble dispute
https://www.reuters.com/markets/commodities/poland-ends-deal-receive-russian-gas-after-rouble-dispute-2022-05-23/
Barr, Biden's pick for Fed regulation role, cruises through confirmation hearing
https://www.reuters.com/world/us/barr-bidens-pick-fed-regulation-role-be-quizzed-by-senate-2022-05-19/
How Government Created the Baby Formula Shortage—and a Black Market for 'Unapproved' European Imports
https://fee.org/articles/how-government-created-the-baby-formula-shortage-and-a-black-market-for-unapproved-european-imports/