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Russian Ruble Plunges Beyond Comfort Zone Amidst Internal Strife

Buckle up, investors. The Russian ruble is navigating through some choppy waters, plunging beyond its designated “comfort zone” against the US dollar. This dramatic shift in currency exchange is a ripple effect of last month’s failed mutiny attempt by the Wagner mercenaries, adding a new wave of instability in Russia’s already turbulent economy.

The ruble, finding itself in a relentless downward spiral, reached a disquieting low near 91 per US dollar this Wednesday, a 3% fall following the unsuccessful revolt against Moscow. This dip has pushed the currency beyond its optimum exchange range of 80-90 per US dollar, as outlined by First Russian Deputy Prime Minister Andrey Belousov.

The Russian currency has been a laggard this year, earning the unenviable title of one of 2023’s worst-performing currencies. The ruble has been weathering the storm of economic sanctions and relentless pressures from Russia’s ongoing conflict with Ukraine. As Western trade restrictions tighten and military spending surges, investors are nervously observing the impact on Russia’s financial reserves. This year alone, the ruble’s value against the dollar has depreciated by a staggering 21%.

Not surprisingly, ruble holders are showing signs of shifting loyalties. Data from Bloomberg Economics highlights a surge in retail deposits held in other currencies, escalating to a whopping $43.5 billion from early 2022 through May 2023. Further amplifying this trend, 15 regions in Russia reported a 70-80% surge in demand for other currencies in the aftermath of Wagner’s botched rebellion, according to Belousov.

In response to this financial predicament, the Kremlin has pivoted towards other currencies, notably China’s yuan. To compensate for dwindling energy revenues, Russia’s finance ministry reported that the government initiated the sale of its $54 billion yuan reserves as early as February.

This roller coaster ride of the ruble serves as a stark reminder to entrepreneurs and investors about the geopolitical risks associated with international investing. The ongoing fluctuations in Russia’s economic landscape underline the need for caution, diversification, and a keen understanding of global dynamics. The future of the ruble remains uncertain, but one thing’s for sure – it’s not a ride for the faint-hearted.

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