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Russia currency collapse and reponse

December 18, 2014

I don’t have much insight into this, this is mostly for the record, to mark the events of the past week. US-EU sanctions combined with the oil price collapse have hit Russia hard, leading the Ruble to collapse in value. Not much risk of default, since the Russian government and corporates are well capitalized.

However, the flight out of the Ruble has accelerated to a pace so fast that most businesses (a) can’t offer commercial credit because of inflation and (b) some businesses (those connected to international commerce) have a hard time setting prices, which is when (ruble-denominated) commerce in those sectors shuts down, and if that spreads far enough, the result is the kind of thing you think about in disaster-preparation, if you’re into that. Maybe the equivalent of having your entire country flooded, lets say… that’s where it had potential to go, and fast.

Central bank responds raising rates to 17% (!). This makes Ruble-denominated borrowing unaffordable, but if successful at stabilizing exchange rate, Ruble-denominated commerce can continue in pay-cash mode. Lots of fallout to come already, story is ongoing…

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