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Russia's Sliding Ruble

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As if Russia did not already have enough worries, with the security issues associated with the Sochi Olympics and the growing unrest next door in Ukraine, it now faces severe downward pressure on its currency. Any currency crisis flirts with economic opportunity and political disaster at the same time. The falling ruble can address some of Russia’s structural economic shortcomings, but only if other financial resources are made available in the process.

Russia is not alone in seeing its currency plunge. Turkey, South Africa, Argentina and Thailand have all experienced precipitous declines in their respective currencies since the beginning of 2014.

A common refrain runs through all these cases. The end of the U.S. program of quantitative easing and foreign investors’ rapid retreat from emerging markets has jolted the currency market, creating uncertainty in its wake. Throw in Russia’s low growth rate, high levels of capital flight and endemic corruption and one has all the conditions for a perfect currency storm.

January was a particularly bad month for the Russian ruble, with the currency falling more than 6 percent against the euro-dollar basket. The ruble rebounded a bit in early February, but it has again resumed its downward trend, with many experts speculating that the currency has yet to find its bottom.

The currencies of Russia’s post-Soviet neighbors also are in freefall, most notably in Ukraine, where currency controls have been introduced to save the hryvnia from total collapse. Kazakhstan, meanwhile, preemptively devalued the tenge by 19 percent in an attempt to keep its economy—and its exports—competitive.

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