U.S. Bank of America explains Ruble's rise as top currency of the year.
Unexpected Strength of the Russian Ruble in 2025
After five turbulent months in 2025, the Russian ruble, surprisingly, has emerged as the world's top-performing currency, according to economists at Bank of America (BoA). This fact is even more astonishing given that the previous two years saw the ruble's dramatic fluctuations, with a notable weakening in 2023-2024.
The ruble's unexpected strength is largely due to the increased control exerted by the Central Bank of Russia (CBR) on capital and its stringent monetary policy, led by Elvira Nabiullina. The dollar's decline, which began following Donald Trump's return to the White House, also played a role.
Brendan McKenna, economist and currency strategist at Wells Fargo, highlights three key reasons for the ruble's impressive rally. "The Central Bank maintains a relatively high benchmark rate (currently at 20%), controls capital, and imposes other currency restrictions. Add to that some measured progress towards peace between Russia and Ukraine," he told CNBC.
High-interest loans hinder Russian businesses from importing a significant amount of goods from abroad, reducing demand for foreign currency among both manufacturers and consumers. The cooling consumer activity means that the Central Bank spends fewer rubles, as it previously did, on purchasing dollars, euros, or yuans.
The increase in demand for rubles is further boosted by the Russian government's and the country's main bank's requirement for all dollar-based transactions to be conducted in rubles. On the other hand, importers have had to reduce their foreign purchases, effectively reducing or significantly decreasing their need to exchange rubles for dollars.
The Russian government requires large exporters to transfer a portion of their foreign earnings to the Russian market in rubles, particularly American dollars, which make up a sizeable portion of the inflow of foreign currency into Russia. According to the Central Bank, large exporters swapped foreign currency in this manner for a total of 42.5 billion dollars in January-April 2025, representing an almost 6% increase compared to September-December 2024.
Steve H. Hanke, a professor of economics at Johns Hopkins University, attributes the ruble's notable strengthening to the decrease in the money supply provided by the Russian Central Bank. For example, the growth rate of the money supply soared to 23.9% in August 2023 but had fallen below 0 and currently stands at -1.19% in January-May 2025.
Geopolitical factors, such as hopes for the resolution of the conflict between Russia and Ukraine and the election of Donald Trump as the US President, have also contributed to the return of some foreign capital to Russian assets, despite seemingly strict controls. These foreign funds have further solidified the Russian currency.
While acknowledging the remarkable performance of the ruble, many analysts warn that the ruble's rally is likely temporary. They point to the sharp decline in oil prices, which continue to be Russia's main export, and natural gas, another crucial source of revenue for the Russian treasury, as potential threats to the ruble's strength.
"We believe the ruble is close to reaching its peak and may start weakening in the near future," economist Andrei Melaschenko at Rennessance Capital said of his forecast. "Oil prices have significantly decreased, leading to reduced export revenues and foreign currency sales by companies."
The Russian government's finances are heavily dependent on revenue from oil and gas. According to a senior economist at Bank of Finland, Heli Simola, oil and gas accounted for roughly 30% of Russia's earnings in the previous year.
"The Ministry of Finance had to rely more on the National Welfare Fund of the Russian Federation (NWF) to fund expenditures," explains Andrei Melaschenko. "Further reductions in non-priority expenditures may occur if this trend (low oil and gas prices) continues."
- The unexpected strength of the Russian ruble in 2025, despite its dramatic fluctuations in the previous two years, can be attributed to the industry of the Central Bank of Russia (CBR) and its strict monetary policy, as well as the finance sector, with high-interest loans hindering Russian businesses from importing goods.
- Brendan McKenna, an economist and currency strategist at Wells Fargo, identifies three reasons for the ruble's impressive rally: strict control imposed by the CBR, the dollar's decline, and measured progress towards peace between Russia and Ukraine.
- The banking and insurance sector plays a role in the ruble's strength, with the Russian government enforcing the requirement for all dollar-based transactions to be conducted in rubles, as well as mandating large exporters to transfer a portion of their foreign earnings to the Russian market in rubles.
- Personal-finance experts warn that the ruble's rally might be temporary, citing the wealth-management risks posed by the sharp decline in oil prices, Russia's main export, and reduced export revenues, which could lead to a weakening of the ruble in the near future.
