The "shadow" of the financial crisis in Russia.

(Baonghean) - The Russian ruble has plummeted to record lows in recent days, with 80 rubles exchanging for only 1 USD and 100 rubles for 1 Euro. Despite the Russian Central Bank's sharp increase in interest rates from 10.5% to 17%, the ruble's rapid and sharpest decline in 16 years, coupled with record low oil prices, is reminiscent of the 1998 financial crisis, when the ruble collapsed and Russia defaulted on its debt. Will this scenario repeat itself?

The Russian ruble continues to depreciate. Source: Bloomberg

Back in 1998, the collapse of the monetary system in just a few days caused Russia to default on its debt and officially plunge into a currency crisis. And it wasn't just Russia; it was a crisis for the entire emerging market bloc, with oil prices and currencies plummeting simultaneously. Returning to the present day, many similarities have emerged, as the Russian ruble has failed to prevent further depreciation, and the storm of falling crude oil prices in the US and global markets continues. December 15th was not only the lowest point for the ruble's value, but also the "worst day" for crude oil in the past seven years. Specifically, since peaking at $107 per barrel for WTI crude and $115 per barrel for Brent crude in June, the prices of both types of oil have fallen by more than 50%.

Meanwhile, according to Bloomberg, the exchange rates of the 20 most traded currencies in emerging markets fell to their lowest levels in 11 years on December 15th. Besides the ruble, the Indonesian rupiah also recently hit its lowest point since 1998, and the Turkish lira also experienced a depreciation. Another factor that brings to mind the 1998 financial crisis is the US Federal Reserve's plan for its first interest rate hike since 2006, increasing the likelihood of a massive capital outflow from developing countries. Returning to the Russian economy, another setback is that US President Barack Obama has just announced he will sign a bill continuing sanctions against Russia this week. If this happens, it is unclear what will happen next to the current Russian economy.

However, according to analysts, the situation is not as dire as it was in 1998, as the context has changed significantly. Analysts say that developing countries, including Russia, now allow their currencies to fluctuate freely, rather than adhering to the rigid fixed exchange rate mechanism of 1998. Furthermore, these countries have significantly higher foreign exchange reserves than they did 16 years ago, providing them with the conditions to weather unexpected fluctuations in the financial markets. Another factor is that instead of the US dollar, developed countries now largely raise capital in their domestic currencies, allowing them to repay debts without worrying about depleting their foreign exchange reserves. Meanwhile, despite the slowdown in the Russian economy, Russian officials remain undeterred and urge citizens to have confidence in their domestic currency. In a recent statement, Economy Minister Alexei Ulyukayev argued that the current exchange rate does not reflect Russia's fundamental macroeconomic situation, and that the ruble's depreciation is simply a result of market calculations and expectations.

In terms of causes, the ruble's depreciation is due to sanctions from the US and the European Union. However, even the EU is currently divided on sanctions against Russia, because if the Russian economy suffers, the economies of EU countries will also be severely affected. Therefore, "blocking all avenues" for Russia is not the optimal solution for the EU. Meanwhile, the recent statement by the US President about signing a bill to continue sanctions against Russia is also considered a "confusing message" sent to European allies, as it was not consulted with the EU on this issue. Thus, many reasons suggest that a financial crisis scenario is unlikely to repeat itself for Russia in particular and emerging economies in general. Although Russia's currency reserves and public finance system are now considered much more stable than in 1998, Russia is actually facing too many difficulties. Therefore, Russia desperately needs a solid economic stabilization policy that leaves no room for error or mistake.

Phuong Hoa