On February 24, the Russian invasion of Ukraine began, after which the authorities of more than 40 countries imposed large-scale sanctions. The stock market and the ruble reacted to these events with the largest fall in the history of modern Russia.
Why the dollar first collapsed to a record level and then recovered, and how cryptocurrencies allow residents of the Russian Federation to buy foreign currency bypassing the Central Bank’s currency restrictions, Cryplogger figured out.
Why did the ruble collapse
Although the weakening of the ruble is usually tied to the start of the war in Ukraine, in fact, the Russian currency began to depreciate on February 21, when Vladimir Putin recognized the self-proclaimed “DNR” and “LNR”. In one day, the dollar rose from 76.5 to 80.5 rubles.
By the end of February 24, its value had already reached 86 rubles, and on February 28 it jumped by another 20 rubles. The rate reached its maximum on March 10 at a mark above 121 rubles, after which it began to strengthen and on March 29 it dropped to 83 rubles.
To explain the reasons for such volatility, it is worth turning to macroeconomics. Western countries resorted to a radical measure – they froze all foreign assets of the Bank of Russia.
Despite the aggressive rhetoric of the Kremlin in recent years, the international reserves of the Central Bank were kept mainly in Western banks, and a significant part of them was denominated in foreign currency. As later explained in the Central Bank, this was necessary to counter the outflow of capital in the conditions of the “classic” financial crisis. The access of the Russian authorities to these funds after the start of the war was blocked.
How clarified later the Minister of Finance of the Russian Federation Anton Siluanov, the total amount of frozen funds is $ 300 billion – about half of all international reserves. And Foreign Minister Sergei Lavrov acknowledgedthat the Kremlin was not ready for such a scenario.
Because of this, the government faced problems in paying coupons on government bonds denominated in foreign currency. But an even greater problem for the Central Bank was the inability to conduct foreign exchange interventions. This is a standard monetary policy measure used by the central bank to prevent or at least mitigate a sharp depreciation of the national currency.
Currency intervention means that the Russian regulator begins to sell large amounts of foreign money from its reserves on the open market and buy rubles. However, the Bank of Russia simply did not have at its disposal either dollars or other reserve currencies.
How the Central Bank restricted the Russians
The free fall of the ruble threatened the onset of hyperinflation.
The depreciation of the ruble would create a colossal commodity deficit and the inability to pay with Russian money. All this could lead to the destruction of the economy, as it once happened in Venezuela.
Therefore, to stabilize the Kremlin resorted to no less radical response. Since March 9, the Russian authorities have effectively denied ordinary Russians access to dollars and other stable currencies.
Individuals were forbidden to withdraw more than $10,000 from foreign currency deposits in Russian banks and only in dollars. All money in excess of this amount, with the exception of accrued interestremain in the bank. At the same time, financial institutions can still open new foreign currency deposits. The restriction is valid for six months, until September 9. This measure made it possible to reduce the volume of purchases of foreign currency within Russia. In addition, the Central Bank introduced a mandatory commission of 15% for foreign exchange transactions.
Another, no less important measure was associated with restrictions on the export of foreign currency from the country. Individuals and organizations, with rare exceptions, restricted currency transfers abroad in the amount of $5,000 per month. In addition, Russians can no longer take cash over $10,000 abroad.
Finally, Russian exporting companies were obliged to sell 80% of all foreign exchange earnings from sales abroad.
All this made it possible, on the one hand, to maintain the maximum amount of foreign currency in cash within Russia, and on the other hand, to minimize the export of capital abroad. As a result, after March 9, the ruble began to strengthen.
The rise of the black market for cash
The shortage of foreign currency in Russia has exacerbated the ban by the US and EU authorities on the import of cash dollars and euros into Russia. Then Japan joined them (the yen is also included in the list of traditional reserve currencies).
All this led to two consequences. First, the rise of the black market for currency exchange. How writes “Kommersant”, all kinds of currency exchange communities have appeared massively in Russian social networks. You can find them by simple queries “buy dollars”, “currency exchange” and so on. All such services operating on the territory of Russia are illegal according to Russian laws, experts explain, since they trade currency without the participation of authorized banks.
Secondly, the same illegal online exchangers actively use crypto assets for exchanges. So, in the Telegram channel “Central Exchanger” with more than 1.1 million subscribers, you can exchange Tether, bitcoins, dollars, rubles and euros. Transactions take place in the office of the exchanger in Moscow.
Some exchangers work through Telegram bots. There are chats where exchanges take place directly between users.
However, the probability of stumbling upon scammers is extremely high, and you can use such services only at your own peril and risk.
Tether as an alternative
In addition to the frankly illegal sector, there is a much safer “gray zone” – this includes well-known foreign cryptocurrency trading platforms that have a good reputation, but are not regulated by the laws of Russia.
They provide Russians with the opportunity to buy, for example, the stablecoin Tether, pegged to the dollar, and at a price closest to the current value of the dollar on the Moscow Exchange, and without having to pay a mandatory 15% commission imposed by the Central Bank.
USDT is the most liquid stablecoin, which is supported by almost every crypto service and which can be exchanged for fiat currency (the same rubles and dollars) and other crypto assets at any time.
Other advantages of such platforms compared to online exchangers: user-friendly interface, transparent and often profitable rates, an understandable exchange system, the presence of at least some guarantees from the site administration, support service.
These platforms include cryptocurrency exchanges. One of the most popular is Binance. The difference between the dollar exchange rate on the Moscow Exchange and the USDT/ruble pair is 3-4 percentage points.
At the same time, it should be taken into account that the ruble account in Binance can be funded only through Advcash and Payeer (no additional fees), which, in turn, charge fees for replenishment.
You can also buy USDT “hands on”, that is, exchange rubles for another user’s tokens on one of the popular P2P platforms. The advantages of this method are a greater choice of exchange methods, including card transfers. However, these are increased risks, and they are included in the exchange rates.
According to the aggregator Moneytorythe P2P section of Binance has the most offers, followed by Paxful and LocalCryptos.
It is possible that USDT is already being actively used to circumvent restrictions on the circulation of foreign currency in cash within Russia.
In the same BestChange aggregator that collects data on the “gray” market of the online exchange of cryptocurrencies for fiat, there are dozens of exchange services that can exchange USDT for cash dollars. More than a dozen exchangers in Moscow and St. Petersburg buy stablecoin for cash at an increased rate above $1.
Future prospects
For Russians, the stablecoin has become a popular and often better alternative to the dollar in an era of currency restrictions and scarcity. At the same time, while access to the exchange of rubles for crypto assets and their further transfer to foreign fiat on well-known platforms is limited and fraught with risk, because the authorities have not really decided on the status of cryptocurrencies, and they remain in the “gray zone”.
Some expect the current financial sanctions to push the Kremlin to legalize the crypto market. The need for such a step was recently recognized even by Prime Minister Mikhail Mishustin, and the initiative was supported in the Ministry of Finance. At the same time, Mishustin noted that such a decision could only be made with the consent of the Bank of Russia, which, despite the sanctions, remains the main opponent of cryptocurrencies in the financial bloc.
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