For the economic development and the prosperity of a country its currency’s value, strength and competitiveness against other currencies is very important. Currency value is determined by aggregate supply and demand. Supply and demand are influenced by a number of factors, including interest rate, inflation, capital flow, and money supply. The most common method to value currency is exchange rate.
It is surprising that despite the worst sanctions against Russia by European countries and United States of America, Russian currency Ruble is becoming stronger and more powerful. It’s now strongest in more than seven years. It has surprised the world’s economists and got the distinction of world’s best performing currency. Many other currencies of the world were worst hit in recent months after Ukraine crisis. South Korean Won hit lowest value in 13 years, while Japanese Yen hit 24 years low US$ 1 is 136 yen 18% down against dollar. Philippines Peso is at lowest in 17 years. UK inflation is 40 years high. The Ruble was trading at 54.47 against US dollar while it was 139 against US dollar in March. Since the start of the year, the ruble has gained 40% against US dollar which is a magnificent gain while other currencies have witness significant decline. This is a proof of Russian currency and its economic strength that despite sanctions it is standing on sound footings. According to Russian leadership it was the planning of European countries and United States of America to crush the Russian Economy but the plan seemed failed.
The situation is so worst for European countries that Euro hits 20 years lowest against US dollar. There is a fear about the European economy which is facing the worst situation. It was one of several signs of renewed economic worries around the world, which were also reflected in stocks wobbling, bond flashing warning signals and oil prices which were fell US$ 10 per barrel on 5th July, 2022. Russian leadership well controlled the imports and under the normal circumstances a country hit by economic sanctions would see flight of capital , causing its currency to fall in value but it did not happen with Russian currency rather it become stronger and this is a surprise for USA and European policy makers.
The export of fossil fuels has provided a much support to Russia which earned a huge sum of US$ 20 billion per month since the start of Ukraine crisis. It is estimated that Russia could amass a surplus of US$ 320 billion this year from energy exports.
Despite ban on Russian imports by Europe and America, many countries continued to buy from Russia including China, India, and South Korea etc. When Vladimir Putin demanded from other countries which wish to import from Russia should pay in Ruble and these countries complied. The Russian central bank has also bolstered the ruble by banning foreign holders of Russian stocks and bonds from taking dividend payment out of country.
The ruble’s gains result from a series of measures taken by the government to defend the battered currency in the aftermath of Western sanctions. On top of imposing capital controls, Russia has forced exporters to sell foreign-exchange and is demanding its natural gas be paid for in rubles.
War always brings hunger, deaths, displacement, poverty and destruction. It is the duty of world’s policy makers and influential ones to promote peace, harmony and negotiations. United States and European were widely indulged in war mongering, arms supply and closed their eyes from atrocities, planned and organized genocides by Israelis against Palestinians and Indians against Muslim minorities and people of Kashmir. Both EU and USA supported the bloodshed in Vietnam, Afghanistan and Iraq. They have dual standard and this dual standard is jeopardizing global peace and stability.
These sanctions as there are general impression that hit Russian economy badly but the other side of coin is that it also hit the EU economy very badly. EU Was hardly recovered from Covid Pandemic which left private consumption and investment well below pre-covid forecast even as fiscal and monetary support underpinned an impressive rebound in employment almost to levels last seen before the pandemic. Spiking energy and food prices are now cutting deeply into household consumption and economic uncertainty is poised to restrain investment. Latest regional economic outlook lowers the growth forecasts for Europe. For advanced economy growth projections cut by one percent point to 3% in 2022, Inflation will increase 5.5% in advanced economies and 9.3% in emerging European economies. Oil prices are increasing which is severely damaging the growth targets and making the life in Europe miserable. In the Euro area, inflation reached 7.4% in March, the highest level since the introduction of the single currency. Four countries are facing double digit inflation in euro area core energy prices, which reached almost 45%. Sanctions against Russia badly affected global supply chain. Consumer confidence has dropped remarkably since the sanctions are imposed. In Europe 90 % gas consumed is imported and Russia provides half. Russia also accounts 27% of oil and 46% of coal imports. Defence spending going to rise significantly which will further exacerbate the situation and would be a great burden on economy. Many European companies like McDonald, Ikea left Russia which reduced their revenue significantly.
European Union and Russian conflict economists have defined as “the third asymmetric shock” that Europe had experienced in the last two decades after 2008 financial and economic crisis and the covid 19 pandemic. This crisis will also spell out the end of globalization and it is going to might reshape alliances. EU is going to review protectionism similar will do USA. Russia Ukraine conflict has already created economic disruption and increased poverty, food, insecurity and inflation for beyond Eastern Europe. Ukraine grows enough food to feed 400 million people world-wide which include 50% of the world’s sunflower oil supply,10% of the worldwide grain supply, and 13% of the global corn supply. This food supply chain disruption has badly affected many European countries. Food prices already soared in Germany, UK and other countries. On 31st March, 2022 Vladimir Putin ordered the gas export to Europe should be paid in Rubles instead of euros. Demand to pay in rubles can lead to bypass the euro or dollar financial system and therefore continue to feed Russian State finance. Germany is worst hit by Ukraine war and cannot afford sanctions against Russia. Germany’s investor’s sentiments fell to its lowest level since the start of covid 19 pandemic. The Zew Research Institute disclosed that economic sentiments index recorded the biggest decline in the 31st year history of its monthly poll of investors, reflecting fears that EU’s biggest economy could hit by a recession and soaring inflation as a result of sanctions against Russia and Ukraine war soaring energy prices and waning confidence and threatening to derail the what promised to be a second strong year of economic recovery from the covid 19 pandemic in Europe.
In UK alone inflation and price hike made the lives of people miserable and many people are forced to abandon one time meals. Many families to save their electricity bills they are spending time in cheap restaurants. According to one survey 52% people stopped to meet with their friends. 44 % reduced driving their cars.
There is a need to bring peace and cooperation in world and instead imposing sanctions against Iran and Russia European countries and USA join hands with Russia, China and Iran to stabilize global economy and do justice with the people of Kashmir and Palestine.
If timely action has not been taken world economy would face worst situation and billions of people would fall below poverty line and the developed countries would also face worst situation and their people’s life standard would fall.