Rouble’s strength is sign of Russia’s weakness

The Russian rouble's recent sharp rebound reflects economic weakness, not resilience. After shedding 45 per cent of its value against the dollar in the two weeks after Russia invaded Ukraine, the currency has bounced back and is now trading just below its pre-war level.

But the tools that have been used to prop up the rouble make it look like a Potemkin currency – like the fake façades ordered by the eponymous prince to fool Empress Catherine II into thinking Russian villages were prosperous.

Since February 24, the day the Russian invasion began, the central bank has raised its key interest rate from 9.5 per cent to 20 per cent, slapped capital controls on much of the economy, and forced Russian exporters to convert their foreign currency revenues into roubles.

Meanwhile President Vladimir Putin is trying to make buyers of Russian gas and oil pay in roubles.

The efforts to shore up the rouble are in line with one of Putin's key beliefs. The humiliation of the steep devaluations of the 1990s helps explain why a stable currency has been a key element of policy since he came to power more than 20 years ago.

Central bank chief Elvira Nabiullina's relative independence has been respected because she has been a fierce guardian of the currency's stability.

Yet the rouble remains at the mercy of any Western embargo on Russian oil and gas. The punitive 20 per cent policy rate will further hurt an economy that the European Bank for Reconstruction and Development expects to shrink 10 per cent this year, just on the basis of sanctions already taken.