How the Ruble Became This Month's Best Currency

The ruble rises again (somehow).

So much for the BRICs jibba-jabba: Russia has been downgraded back to junk status by Moody's, from the last investment-grade rating (Baa3) to the highest non-investment-investment grade rating (Ba1). This has prompted accusations of sinister machinations by the West [surprise!] from Russian authorities. However, it may indeed surprise you to know that, despite the downgrade, the ruble has actually been the best-performing currency of February 2015. How did this surprising performance happen? Also, is it for real? The answer is that the Russian government has asked the "help" of commodity-exporting firms to buoy the ruble by immediately changing foreign exchange earnings--dollars, euros, etc.--into the local currency:

Russian exporters are piling up rubles after President Vladimir Putin’s government asked their help in supporting the currency last year. OAO GMK Norilsk Nickel, Russia’s largest miner, and steelmaker PAO Severstal are among exporters converting more of their dollars and euros into local currency, according to company filings and people with knowledge of the situation. It’s a policy encouraged by the government to help stabilize the ruble after its 47 percent plunge last year.

As the currency crashed, Putin called on Russian companies to coordinate foreign exchange deals with the central bank. That some of the country’s largest businesses appear to be complying shows the growing influence of the state over the economy as Russia contends with lower oil prices, currency devaluation and sanctions. Russia’s central bank said it monitors currency sales by companies, though sets no targets for transactions. 

Ah, gentle persuasion from today's Russian government, i.e., they do not really have a choice lest they be ostracized by Putin and Co. With most of the current set of raw material-exporting oligarchs being Putin-friendly characters to begin with since they would have been long gone Khodorkovsky-style if not, there was not much persuasion needed. Rather, what's eyebrow-raising is that this artifice seems to be working so far:

“The serious work with exporters was important in December and the beginning of January when the currency market was very narrow and the volatility was high,” the bank’s press service said on Thursday in response to questions from Bloomberg. “Now the market is recovering and is not that dependent on the exporter revenue sales.”

The ruble has been the world’s best-performing emerging market currency this month, gaining 12 percent versus the U.S. dollar [my emphasis]. “Export revenue sales, which increased since the end of last year, give significant support to ruble and they are also one of the major reasons for the ruble’s plunge slowing down,” [said] Anton Tabakh, a director at RusRating, a Russian credit-rating firm.

Norilsk, controlled by billionaire Vladimir Potanin, sold foreign currency for about 30 billion rubles ($483 million) in cash since the end of December, after the government encouraged companies to switch export earnings into local currency, two people with the knowledge of situation said, asking not to be named because the information isn’t public.

To be sure, it's partly due to oil prices not dropping any further from the $50/bbl handle and the Ukraine crisis being tamped down somewhat. That said, "Russian ruble, February 2015's best-performing currency" takes some time getting used to.