After Russia invaded Ukraine, several detrimental things happened. First, Russia’s currency dropped again, which made its total loss of value around 10 percent for 2014. Despite efforts by Russia’s central bank on behalf of the ruble, which included an interest rate hike to seven percent from 5.5, the ruble remains one of the shakiest currencies in the world. Because of its reduced value, Russia cannot buy large sums of stronger, more valuable currencies, which, in turn, affects the strength of those currencies. “MXT Global’s Forex Trading has seen massive spikes in trading with these currencies, as traders seek to profit from the instability.”
Both economies, Russia and Ukraine, have been strained by the invasion. Russia’s economy suffered a hit when stock markets fell around the world and particularly affected Russian companies. The Ukrainian economy has been affected by rapidly disappearing reserves of cash, a $13 billion debt that’s slouching toward default and a devalued currency that is especially troubling given that most of Ukraine’s debt is in United States dollars. Reports indicate that Ukraine’s finance minister is seeking to restructure the nation’s debt to keep the country solvent and avoid default.
Russia’s actions have also led to discussions of sanctions; Russia has threatened action if sanctions are imposed. Additionally, sanctions would affect more than just Russia. The European Union is Russia’s third-largest trading partner, behind the United States and China, and would see dramatic drops in sales stemming from a combination of Russia’s falling currency and a lack of buying power coming from any sanctions. Worse, more than three-quarters of foreign investment in Russia comes from the EU; Russia is the largest supplier of oil and natural gas to the EU. The spiraling, vicious circle is readily apparent.
The EU has also offered an 11-million Euro package to Ukraine, which would allow the country to avoid default and shore up its obligations. The United States has also pledged a billion dollars to the effort. EU leaders have said that Russia should begin talks with Ukraine immediately or face limited sanctions despite the possible effects on the EU’s recovery. Several ministers voiced concern about avoiding a trade war if at all possible because of the looming, deleterious effect on both sides, but they were also unwilling to accept Russian dominance in Ukraine. Analysts predict that, should a trade war erupt, Russia would wind up on the losing side because of united pressure against them.