The Russian rouble dropped to 110 against the US dollar on November 27, its lowest level since the start of the war in Ukraine. It has since rallied slightly, but the rouble is still down by 8% against the dollar over the past month. This is not a one-off event; it is part of a developing crisis that is affecting Russia’s economy.

Russia’s currency has been highly volatile since its troops invaded Ukraine in February 2022. The initial collapse, which saw the rouble lose one-third of its value by March compared with the start of the year, was due to the exodus of capital from the country following the introduction of western sanctions. Capital flowing out of Russia made the rouble more readily available on the foreign exchange market, hence causing its value to depreciate.

In response, Russia’s central bank implemented strict capital-control measures to stabilise its currency. The measures included mandating that exporters convert 80% of their foreign currency earnings into roubles, as well as limiting foreign currency withdrawals for individuals to US$10,000 (£7,900).

By the middle of 2022, when energy prices were rising, Russia had found ways to circumvent the sanctions and export much of its oil and gas to countries like China and India. Russia benefited from strong export revenues and the rouble temporarily recovered its value. The capital controls also artificially boosted demand for the........

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