The price of oil is down over 50% over the last six months. Two-thirds of the goods and services Russia exports to other countries…… is?
……oil. Since a large portion of Russia’s revenues are reliant on exporting oil, and the amount they can sell oil for has gone down a lot, the stability of their economy went from bad to worse. Would you want to own the currency of a country if that currency was becoming less and less stable because the economy is becoming less stable? No. So the Russian Ruble is going down in value big time.
And if the currency is losing value, would you want your money sitting in the bank, in that currency, losing value? Or would you want to move your money out of a Russian bank somewhere else, maybe to another country, where you feel it is safer?
Well now one of Russia’s banks just told clients they wouldn’t be able to withdrawal their money.
Keep in mind that this bank is Russia’s 80th largest by assets according to the WSJ. Regardless. Not good.
So a S&P, a U.S. credit rating agency, just downgraded Russia’s “rating.” Now Russia’s ability to borrow money is labeled as “junk” because this credit rating agency is losing confidence in Russia’s ability to pay back their loans.
If your ability to borrow money and pay it back is “junk” status, it means it will be more expensive for you to borrow money. It’s more expensive for you to borrow money because you have to pay a higher interest rate to people who are loaning you money (think of high interest credit cards for people who might not be able to pay off their credit cards because they make little money or have a history of not being able to pay off their credit card).
This “junk” status only makes it worse for Russia’s ability to borrow money, pay back loans, and try to grow their economy. Meanwhile back at the ranch….Putin continues to deny Russia’s sneak attacks into Ukraine….
While his economy and currency are tanking.