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How Russia’s “currency collapse” affects American businesses
The Russian economy has been quickly slipping since its invasion and annexation of the Crimean Peninsula, formerly a part of the Ukraine. With that, the ruble has lost most of its value in 2014 alone, and its current trajectory is pointed in the same direction. However, it is more than Russia’s alleged intervention in the Ukrainian civil war that has crippled its economy.
Russia’s primary export commodity is oil, the price of which plummeted at the end of 2014. As the year closed, Russia was left devoid of foreign money with the oil price drop, dropping the ruble 11 percent in value over the course of one day. Russia’s central bank raised interest rates by a staggering 650 basis points. However, the market was not done. The world oil surplus in conjunction with strict international sanctions against Russia for its role in the turmoil in Ukraine led to another 8 percent value drop by the following announcement. Over all, this paints a picture of a deep recession for Russia in 2015 and financial experts are already calling this a currency collapse.
At this time, Russian companies (both private and state-owned) hold about $670 billion in debt in foreign currency. To put this in perspective, that is about a third of the size of the entire Russian economy. Investors and currency traders are starting to speculate how Russian companies will be able to service their debts if the economy continues to drop.
What does this have to do with U.S.? On the surface very little since these two countries conduct very little trade. However, Russia has relationships with many nations around the world and its instability means the instability of other countries. Russian companies can start to default on loan payments to European countries, which means economic strain throughout the continent. Only time will be able to tell how wide and rough the ripple effect will be of this economic crisis.
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