Foreign Exchange for Expats in Russia

Russia’s official currency is the Russian Ruble (RUB) or “rouble”. Since December 2013, the symbol “P” is to be used, as part of a rebranding policy to restore confidence in the Ruble. Bank Rossii is the central bank of Russia, and is therefore responsible for monetary policy.

The Russian ruble is also accepted in South Ossetia, Abkhazia and Belarus.

Exchange rate regime and monetary policy

The Ruble is currently being moved from a managed to a freely floating exchange rate, which is supposed to be fully in place by 2015. Though the Russian central bank still intervenes on the foreign exchange market, it now does so only to avoid sharp currency moves. Accordingly, Russia does not target a specific exchange rate, at least officially.

The purpose of the central bank is to make a credible commitment to a stable monetary framework. To this end, Russian policymakers are gradually implementing inflation-targeting, just like Western countries.

Although there is still a long way to go, there is evidence that the central bank is trying to slowly anchor inflation (currently above 6%) to low levels over the long-term. At the end of the day, Russia may (or may not) end up having an inflation rate similar than that of the EU or the US. Should this happen, the long-term depreciation of the Ruble would likely come to a halt. Nevertheless, the USD/RUB still has some room to rise by then, say from 33 to 40.

The central bank’s inflation target has been set at 5% for 2014, 4.5% for 2015, and 4% for 2016. Given Russia’s poor track record on inflation-targeting and today’s dire economic situation, one could expect inflation to stay 1% above the target.

Exchange rate trends

Over the long run, the Russian Ruble persistently depreciates. This is largely due to structural high inflation rates and comparatively high money supply expansions.

To preserve the real value of their savings, expatriates must:

• Hoard cash in foreign currency, or
• Keep their rubles but systematically invest them.

Don’t be blurred by long-term ruble depreciation, as this is just a fall in the nominal exchange rate. Instead, you are more concerned with the real exchange rate.

Example

Søren comes from Denmark, a low-inflation country, and he plans to move to Russia in January 2024.

In January 2021, the DKK/RUB exchange rate is 7 and Søren decides to transfer DKK30,000 into Russia. He immediately opens a Russian term savings account (at 7%) to invest the proceeds. Back home, Danish savings accounts offer no more than 1%.

In January 2024, the Ruble has fallen hard and the DKK/RUB exchange rate is 8. Søren wonders if he should have parked his funds in Denmark instead of transferring money to Russia early. We test below both scenarios:

	Søren keeps his DKK	Søren converts his DKK into RUB
Initial funds (in 2021)	DKK30,000	RUB210,000
Interest paid	DKK 909	RUB47,259
Value in January 2024	DKK30,909	RUB257,259
Conversion at DKK/RUB = 8	RUB247,272	N/A

Despite the large RUB depreciation (or DKK appreciation), Søren was better off converting his DKK three years in advance.

The example above is for illustrative purposes only, and is designed to show you the fictitious side of Ruble depreciations. This issue of long-term currency moves is quite frequent for expats moving between a developed country and a developing country. In fact, real-life situations from an expat perspective may involve many other variables, and this may require professional advice.

Exchange rate adjustments

As indicated above, Russia may have structurally large inflation differentials with your home country. Thus, you must make adjustments to ascertain a real exchange rate. There is no set way of doing this, but this is typically achieved by adjusting the exchange rate for inflation. Alternatively, you can adjust the exchange rate for money supply.

Here is an illustrative example:

Example

Amy is a US citizen, and she is planning to use her US dollars to buy a Russian item worth RUB10,000 in year 1. She wonders if she should wait for year 2 and save money in the meantime.

In year 1, the USD/RUB exchange rate is 33. It rises to 34 in year 2. Inflation between year 1 and year 2 is 2% in the US and 6% in Russia. We assume that Amy’s earnings rise along with US inflation.

	Amy buys in year 1	Amy buys in year 2
Price in Russia	RUB10,000	RUB10,600
Price converted to US dollars	$ 303	$ 311
Year 1 price adjusted for US inflation		$ 309

In year 2, the Russian item is effectively $ 2 ($ 311 - $ 309) more expensive even though the Ruble has fallen by 3% (from 33 to 34).

This means that the Ruble has probably appreciated versus the US dollar in real terms. Amy was thus better off buying the Russian item in year 1.

In practice, it is hard to get a hold on an inflation-adjusted exchange rate graph. This is why it is important to understand these dynamics. Failure to do so may lead you to make bad decisions.

US tapering and emerging currencies

As developed countries recover from the largest economic crisis since 1929, they are expected to gradually withdraw their monetary stimulus. This should put upward pressure on major currencies, such as the US dollar or the British pound. The Eurozone should take longer to recover.

The net outcome is that the markets are already anticipating this. The market is pulling capital away from emerging countries back to the US, which puts considerable downside pressure on emerging currencies. Most of them (Brazilian Real, Turkish Lira, Indian rupee, etc.) have been hit very hard, but the Russian Ruble has been quite resilient so far.

In terms of real exchange rates, the Ruble has stayed at relatively high levels. Although this high pricing can be justified by the central bank’s commitment to low inflation, there is no guarantee the markets will be happy to keep paying expensive Rubles over the next years.