SYLVIE DOUGLIS, BYLINE: NPR.
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PADDY HIRSCH, HOST:
This is THE INDICATOR FROM PLANET MONEY. I'm Paddy Hirsch.
WAILIN WONG, HOST:
And I'm Wailin Wong. A Russian ruble today is worth about 1 cent. That's the lowest value it's had against the dollar since March of 2022.
HIRSCH: And this is a big deal for the Russian people, right? It means the cost of goods is rising and contributing to overall inflation. It's also a big deal for the Russian government and the central bank because it makes observers think they aren't really capable of controlling their currency. But it's a really big deal for Russia's president, Vladimir Putin.
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WONG: Russia has a unique relationship with the ruble. Its national identity and the power of its leaders is tied up with the currency's valuation in a way that no other country's is. It's why the entire machinery of the Russian state swung behind the ruble when it collapsed in value after the invasion of Ukraine in early 2022. That briefly made the ruble the best-performing currency in the world.
HIRSCH: So on today's show, we'll take a look at the ruble and its special place in the hearts of its people and the minds of its leaders and why it took so long for the Kremlin to voice its concern about the ruble's recent decline. That's coming up after the break.
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HIRSCH: For as long as the Russians have had a currency - we're talking as far back as the 1700s, by the way - they've regarded it as more than just an economic unit. Ekaterina Pravilova is a professor of Russian history at Princeton and the author of "The Ruble: A Political History."
EKATERINA PRAVILOVA: There is a word - Russian word - (speaking Russian). It have two meanings. One meaning is the nominal value of a coin or a bank note. And another meaning of the word is dignity. And therefore, the fall of the ruble was always considered as the fall of the prestige of the country - something, like, very deeply, culturally and politically important - and is a shame, is an embarrassment.
WONG: An embarrassment - for the people of Russia, for the government and the central bank, but maybe most of all for the country's head of state. Today, of course, that's Vladimir Putin, a leader who has styled himself in the image of Russian autocrats of old - the czars of the 18th and 19th centuries. They ruled Russia before it became the Soviet Union, and they behaved as though the ruble was almost an extension of themselves.
PRAVILOVA: So the czar perceived money as it's - like, it's a continuation or projection of his power. So they're very tightly linked to each other - the monetary system and the political system.
HIRSCH: Back in the 1800s, Ekaterina says, the Russian economy was an autocracy. But it was also an emerging market economy, so it had a conflicted relationship with the monetary systems that were being developed around the world.
WONG: On the one hand, Imperial Russia realized that if it was going to compete, it needed to adopt a model like the ones being developed by the British and the Europeans - even the nascent United States. It was the way of the future - a good thing.
PRAVILOVA: At the same time, this is not good because you cannot rule and control over it. There is speculation. There are these, you know, greedy capitalists who only think about the profit, and the ideology of Russian autocracy is different.
HIRSCH: So the czars developed a unique kind of patriarchal monetary system - an autocracy with market characteristics. It elevated the power of the czar and of Russia and, at the same time, protected the people by making sure that the ruble held its value.
PRAVILOVA: This is all about trust between the, like, peasantry or the population - Russian subjects - and the czar. So the ruble was designed - was kind of supposed to be sheltered or protected from the influences of the market.
WONG: The legacy of this philosophy is a financial and monetary system that has developed in a different way than what we're used to in the West. To the casual observer, it looks familiar. Over here is the Treasury, which is part of the Ministry of Finance and the Kremlin, responsible for the federal budget.
HIRSCH: Yeah, and over here is the central bank, the primary function of which is to ensure the stability of the currency and which is independent of the Russian government, according to the Constitution. Max Hess is the author of "Economic War: Ukraine And The Global Conflict Between Russia And The West." He says that apparent separation of the central bank and the Kremlin is a mirage.
MAX HESS: In Russia, the central bank has absolutely no independence. Despite its reputation as a sort of hub of liberals and critics of the war and those who want to professionally manage the Russian economy, the central bank really only has one mandate in Russia, and that is for the defense and the support of the Kremlin and its stability.
WONG: Because the stability of the Kremlin and its leader is so tied up with the valuation of the ruble, it means that when the currency falls in value, as it did last week, the machinery of the state goes to great lengths to prop it up.
PRAVILOVA: The autocrat claims that the money emanates from him, and it also assumes our responsibility for what is happening to Russian monetary system. And therefore, ideologically, this is why it's so embarrassing and so bad because it affects the prestige of the autocrat. That means Putin's prestige is really affected very badly.
HIRSCH: The ruble's drop to a valuation of just 1% triggered a frenzy of finger pointing. Putin's chief economic adviser blamed the central bank. The central bank blamed government spending on the war, a drop in foreign trade and a labor shortage. No one pointed at the elephant in the room - sanctions.
HESS: You know, a drop in the ruble represents the challenges that the Kremlin faces and the ongoing issues that it has from sanctions and from its trade bases.
WONG: Regardless of who is to blame, the central bank, of course, immediately swung into action. It jacked up its key rate by 3.5 percentage points to 12%. That was done to encourage people to save their rubles rather than spend them on dollars. The central bank also halted buying foreign currency on the domestic market.
HIRSCH: Yeah, but these actions haven't amounted to much. The ruble's now worth about 1.1 U.S. cents. Meanwhile, the Russian people are suffering. But the Russian state? - not so much, Max says.
HESS: One benefit, in fact, from a weaker ruble is that it helps the Kremlin ensure that, even at depressed oil prices, it is able to fulfill its budgetary needs.
WONG: When Russia sells its oil and gas and other commodities overseas, it usually gets dollars in return. Then it exchanges those dollars for rubles to spend domestically on things like the military and on social programs. So the stronger the dollar, the more rubles Russia gets, which helps its budget.
HIRSCH: Yeah, so you can see a real tension here - right? - between the needs of the state to meet its budget, for which a weak ruble is a good thing, and the needs of the leadership, which needs to project an image of power and for whom a weak ruble is a bad thing. Max says there are very different attitudes within different parts of the Kremlin as to what should come next, but it's clear that the currency is a priority.
HESS: And in recent days, a lot of the discussion has been around renewed capital controls, stopping Russian companies from sending money abroad.
HIRSCH: He says the Kremlin's control over companies could even extend to changing their ownership to ensure their compliance with the Kremlin.
HESS: I think, overall, we'll see that total number of Russian companies dwindle to a very much more concentrated number in which Kremlin cronies and lackeys and Putin loyalists have even more influence over the economy going forward than they did in the pre-war era.
WONG: Ekaterina says moves like these to consolidate power to protect the prestige of the leadership are typical of an autocratic leader, and they will likely take place at every level of the Russian administration, including the central bank.
PRAVILOVA: I wouldn't be surprised to see next steps being central bank put under even stronger control of the government and the Kremlin because this is now - that would be the logical consequence.
HIRSCH: She says that, in the past, the czars and, indeed, the leaders of the Soviet Union didn't hesitate to resort to draconian measures to shore up the apparent value of the ruble. That's everything from making the currency inconvertible to annulling old bank notes and issuing new ones - measures to keep Russia's leaders from losing face that usually came at great cost to the Russian people.
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WONG: And now, a little announcement - we need your help. We're testing out something we're calling the Planet Money Bot. Yes, we are playing with artificial intelligence. It's a website where you can get your economics questions answered based on past episodes of THE INDICATOR and Planet Money and where you can find suggestions for what to listen to depending on your curiosity. We're testing out some techniques to make it more accurate than other bots, like showing sources and admitting when it doesn't know something. It's all a test. So please go to planetmoneybot.com and test it out, and then give us your feedback there. That's planetmoneybot.com - planetmoneybot.com. Thanks.
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WONG: This episode was produced by Corey Bridges, with engineering by James Willetts. It was fact-checked by Sierra Juarez and edited by Kate Concannon. THE INDICATOR is a production of NPR.
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