The Russian ruble has lost significant value against both dollars and Bitcoin following sweeping sanctions from western nations, and the cutoff of major regional banks from SWIFT. Citizens are now flooding local ATMs with cash withdrawal requests while the Bank of Russia urges for calm.
Ruble in ‘Free Fall’
After the markets opened on Monday, the dollar spiked to over 108 rubles, compared to just 83 rubles the week prior. Bitcoin is also soaring against the falling currency, which now costs 3,820,000 RUB per coin at the time of writing – the highest price seen all year.
Demand for rubles is collapsing as western countries pressure Russia with waves of sanctions and trade restrictions. Furthermore, with US allies agreeing to exclude Russian banks from SWIFT, financial institutions in the region could have more trouble staying afloat. SWIFT –the Society for Worldwide Interbank Financial Telecommunication – is the world’s largest international financial messaging system.
To support the falling currency, the Bank of Russia more than doubled its key rate from 9.5% to 20%. The bank stated that it “will ensure a rise in deposit rates to levels needed to compensate for the increased depreciation and inflation risk”.
“At the moment, the ruble is in a state close to free fall,” said Alex Kuptsikevich of FxPro in a report. “At some point in the coming days, we will see the limit of the fall of the ruble, from where it will begin its slow and difficult recovery. But it is hardly possible to pinpoint.”
As FTX CEO Sam Bankman Fried hypothesized days ago, wartime conflict could theoretically spur people to withdraw their funds from weaker currencies into ‘hard money’ assets like Bitcoin. While Bitcoin initially fell on news of Russia’s invasion, it quickly rebounded afterward and is now trading above $40k.
Bitcoin also allows users to make long-distance payments without the use of centralized intermediaries like banks. Given the circumstances, Russians have been withdrawing money from banks in droves, with cash demand at its highest since March of 2020. On Friday, the central bank had to increase the amount of money it supplied to ATMs to keep up.
Earlier this month, Russia announced that it would regulate digital assets as currencies within its borders.