What To Consider Before You Invest in the Russian Ruble
Russia’s currency has plunged since the country invaded neighboring Ukraine and the West responded by hitting it with multiple sanctions. Some investors want to know how to invest in the Russian ruble.
The ruble (also spelled "rouble"), as Russia's fiat currency, is used for everyday transactions such as buying groceries and bus tickets. Investors also use the ruble to purchase company shares in Russia’s stock market.
When the ruble’s value declines, those holding foreign currencies such as the U.S. dollar or euro can purchase products priced in the ruble more cheaply. Russia’s central bank is responsible for issuing the ruble and maintaining its value. Like other currencies, however, the ruble’s ability to keep its value is also subject to external factors, such as Russia’s international trade and sanctions imposed on the country.
The Russian ruble’s history
The ruble was initially minted as a silver coin and, at some point, a gold ruble was introduced. During the Soviet era, the currency was the Soviet ruble. After the union collapsed, the currency became the Russian ruble again. The British pound and ruble are the oldest currencies still in circulation.
How to invest in the Russian ruble
The sanctions the West has imposed on Russia have dealt a heavy blow to the ruble’s value and Russia’s financial system. As a result, many investors want to dump the Russian currency instead of holding it as it bleeds value.
But Russia is a major oil exporter and it makes huge profits from the business. It also exports a variety of farm produce. Therefore, if you believe the ruble will recover, you may want to buy the dip and sell the currency in the future after it gains value. Alternatively, if you believe the currency will continue to drop, you could short it and profit from the decline. Although the short-selling strategy is more popular in stocks, you can also do it in the forex market.
What you should consider before investing in Russia’s ruble
War often takes a toll on the currencies of the fighting countries. Whereas the ruble may recover after the Russia-Ukraine conflict is resolved, it may take a long time to get back to where it was before, and investors going long may have to wait years to profit. As we saw following Russia’s annexation of Crimea, the ruble never fully recovered from that conflict.
In this conflict, sanctions are posing a huge threat to the ruble. While Russia could use its huge stockpile of foreign currencies to prop up the ruble, sanctions have cut off the country's access to foreign accounts. The Russian currency could keep falling, making it an unattractive investment for those hoping for a quick recovery.
Overall, whereas you could make money by going either short or long on the ruble, there are also ethical questions to consider. Many of those who condemn Russia’s attack on Ukraine might see profits from the ruble now as blood money.