The Best-Performing Currency This Year Is The One You Can’t Buy

The Best-Performing Currency This Year Is The One You Can’t Buy
Stéphane Renevier, CFA

almost 2 years ago1 min

In February, just before Russia attacked Ukraine, you could exchange one US dollar for 80 Russian rubles. But after the invasion, a dollar would’ve bought you almost 160 rubles, meaning Russia’s currency had depreciated about 50% versus the greenback. That makes sense: the West had imposed sanctions, foreign companies and investors were boycotting the country, and the war was beginning to paralyze the Russian economy. When no one wants to do business with a country, its currency naturally weakens.

Then something surprising happened: the ruble stopped falling, even with the war showing no sign of ending. In fact, it actually started to rally. And now, the ruble – currently trading at 66 rubles to the dollar – is the world’s best-performing currency this year.

The turnaround seems improbable to say the least, given that those sanctions and boycotts haven’t gone away. But it was mostly down to some strict capital controls from the Kremlin – forcing its biggest exporters to sell their foreign currencies and buy rubles, preventing Russians and Russian companies from exchanging them, and demanding payment in rubles for certain energy exports – that created new demand for the currency.

Of course, for the world’s investors, the exchange rate on the ruble is basically symbolic now: most of the world can’t trade it under the imposed sanctions. But this whole story offers an important lesson: you should always expect the unexpected. Your investments can be frozen because of geopolitical turmoil, and never-seen-before price moves can happen (remember nickel?) So make sure you’re not over-allocated to any one position, and remember to hold a cash buffer so you can survive even the most extreme scenarios.



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