The ruble crashed by more than 40 percent after trading began today [February 28, 2022] amid unprecedented international sanctions against Russia’s financial system over Vladimir Putin’s invasion of Ukraine. Russia’s central bank more than doubled interest rates to 20 percent and banned foreigners from selling securities.—The Guardian
What is the ruble?
The ruble is the currency of Russia. Russia’s money consists of ruble coins and notes and bank deposits in rubles.
What does “the ruble crashed by more than 40 percent” mean?
“The ruble crashed by more than 40 percent” means that the value of the ruble fell by 40 percent in terms of the U.S. dollar. The ruble also fell in terms of other currencies like the European euro, the U.K. pound, and the Japanese yen.
The news clip reports a one-day drop of more than 40 percent, but the ruble’s monthly average fell 53 percent between February and March.
Why did the ruble crash?
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How did doubling the interest rate to 20 percent influence the ruble?
Doubling the interest rate to 20 percent limited the fall of the ruble. With a higher gap between the Russian interest rate at 20 percent and the U.S. and European interest rates close to zero, some traders who would otherwise have sold rubles decided to keep holding them, which limited the increase in supply; and some traders who otherwise would not have bought rubles decided to buy some, which limited the decrease in demand. Without the rise in the interest rate, the ruble crash would have been larger than Figure 2 shows.
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