A currency strengthening in the midst of war looks like a miracle, but once you scratch beneath the surface, it becomes clear that someone has to pay for that stability
In a year in which sanctions, war, and Russia’s prolonged separation from the Western financial system have become a new kind of normal, the Russian ruble has emerged as one of the most unexpected stories. While the political narrative continues to portray Russia as isolated and economically under pressure, the ruble’s exchange rate against the dollar and the euro has shown something quite different. During 2025, the ruble strengthened by roughly 45% against the US dollar and ended the year at levels even stronger than those anticipated by the Russian government itself. On paper, Russia got the “currency of the year,” but in reality the story is far more complex.
The ruble as a paradox of a wartime economy
At first glance, this sounds like proof that sanctions do not work and that the Russian economy is more resilient than many in the West are willing to admit. But an exchange rate is never merely the result of an abstract market weighing the strength of economies. In the case of the ruble in 2025, it is a construct that combines several layers of a wartime economy, capital controls, and active state management of foreign-exchange flows. That is precisely why today the ruble says more about how the currency is managed than about the health of the economy itself.
Numbers that defy expectations
If one looks only at the exchange rate, the story appears impressive. At the very start of the year, the ruble was weak, with the dollar trading above one hundred rubles and the euro even higher. In the months that followed, the exchange rate dramatically swung in favor of the ruble. By mid-summer, one dollar was worth just over seventy rubles—among the strongest levels of the Russian currency in several years. By the end of the year, the ruble stabilized in a range between seventy-five and eighty rubles per dollar.
The ruble stood out not only in a Russian context but globally as well. In a year when many currencies were struggling to find balance between inflation, monetary tightening, and geopolitical uncertainty, the Russian currency emerged as one of the world’s best performers. In terms of appreciation against the dollar, it ranked alongside precious metals and outperformed virtually all other major currencies. But here the first illusion appears, because the number looks like a market reward, while in reality it is largely the result of a political and administrative architecture.
How a strong currency is manufactured
The foundation of that architecture is an extremely restrictive monetary policy. The central bank’s key interest rate had earlier been raised to 21% and remained at that level through the end of 2024 and into early 2025. In a normal economy, such an interest rate would signal panic, but in Russia’s situation it has become a tool of stabilization. Savings and bonds denominated in rubles offer exceptionally high returns, so even under conditions of war and sanctions there is a strong incentive to hold money in the domestic currency rather than convert it into foreign currencies or move it abroad. Only in the second half of the year did the central bank begin to lower rates slightly, but even after several cuts, monetary policy remained tight and the message to the market stayed the same: the ruble will be defended with high yields.
Let’s make this more concrete.
Imagine it as a competition between two piggy banks. One is labeled “ruble” and promises that if you put money in it, you will get much more back after a year. The other is labeled “dollar” or “euro” and promises a much smaller reward. Most people would choose the first piggy bank, because it is more profitable. That is exactly what happened in Russia. The central bank “filled” the ruble piggy bank with high interest rates, encouraging people and companies to keep their money in the domestic currency instead of converting it into foreign currencies or sending it abroad. The more people choose the ruble, the greater the demand for it becomes—and when something is in demand and few are selling it, its value rises. In this sense, high interest rates are not magic, but a very simple lure that did its job in this context.
A closed circuit of money
The second key lever is capital controls. Since 2022, Russia has systematically restricted capital movements. Foreign investors from so-called “unfriendly” countries have been blocked from freely selling Russian securities and withdrawing money from the country, while domestic citizens and companies face limits on how much foreign currency they can withdraw or take abroad. Particularly important is the requirement that large exporters must repatriate and sell a significant portion of their foreign-currency earnings on the domestic market. As long as energy, metals, and other goods continue to flow out of the country toward Asia and the Global South, a steady stream of dollars, euros, and yuan flows back into Russia—and by law must be converted into rubles. This creates an artificial but effective, constant source of demand for the domestic currency.
Imagine a city with one large water reservoir and several pipes leading outward. If all the pipes are wide open, water quickly flows out and the level in the reservoir drops. Russian capital controls do the opposite: some pipes are closed, and others are fitted with valves that allow only limited outflow. Money coming in from abroad—for example from oil, gas, or metal exports—must first return to this “reservoir,” and only then can part of it be used further. In practice, this means that dollars, euros, and yuan cannot freely disappear from the system; they must be converted into rubles and kept inside the country. When money is retained internally and exit is restricted, the domestic currency naturally gains value, even if this has little to do with the classical idea of a free market.
When the market stops being public
The third layer is the very architecture of the foreign-exchange market. After US sanctions hit the Moscow Exchange, trading in dollars and euros largely moved off the exchange and into the interbank sphere. The official exchange rate is now calculated on the basis of quotes submitted by banks to the central bank, which has a far better overview of the entire flow of transactions than before. The market has thus become shallower and less transparent, meaning that speculative pressures from outside have a harder time entering—but also that the exchange rate increasingly resembles less a classic free market. At the same time, the central bank has increasingly used the Chinese yuan as an intervention instrument, selling it for rubles and thereby indirectly influencing the ruble’s relationship to the dollar and the euro.
Imagine the foreign-exchange market as a large public flea market—not for goods, but for money, or rather for agreements on how much one ruble is worth relative to the dollar or the euro. While the flea market is open, thousands of people, companies, and funds buy and sell currencies every day—some panic and convert rubles into dollars, others bet on appreciation or depreciation—and out of that chaos a price for the ruble emerges. After sanctions, that flea market was largely closed. Currency trading moved into a small, closed circle involving mainly banks and the state, and the central bank sees almost everything that happens. In such an environment, there is no mass of participants capable of suddenly triggering panic or a speculative attack, so the exchange rate changes more slowly and calmly. When the central bank sells yuan and buys rubles within this closed system, it directly affects the balance of supply and demand, and that shift then reflects on the ruble’s relationship to the dollar and the euro. This is why today’s stability of the ruble does not mean the market is strong and free, but rather that it is controlled and managed, with a price formed under supervision rather than in the open market that existed before the war.
On top of all this comes the fact that the very structure of the Russian economy has changed under wartime conditions. Military spending has exploded, and defense and security expenditures make up a huge share of the budget. The state orders weapons, ammunition, equipment, builds capacity for the military industry, and finances all this through a growing deficit and domestic borrowing. That money circulates within the country and boosts activity primarily in sectors tied to defense. At the same time, high interest rates, expensive credit, and sanctions constraints curb civilian imports. Many Western goods no longer enter the Russian market at all, and those that do arrive via intermediaries at higher cost and often in smaller volumes. The result is simple: a structural surplus of foreign currency relative to demand. Imports are suppressed, exports still bring in dollars and yuan, and the exchange rate is pushed toward a stronger ruble.
At this point, it becomes clearer why a strong ruble is not necessarily good news for the Russian economy. For citizens who still import some goods, it may seem positive, because a stronger currency dampens inflation and makes remaining imported goods cheaper. But for the state budget and exporters, the picture is very different. The budget is filled in rubles, and when oil and gas revenues denominated in dollars are converted into rubles, a stronger currency means less domestic currency flows into the budget. The government planned the fiscal year on the assumption of a weaker ruble, and now faces a shortfall that must be covered through additional borrowing or spending cuts. Exporters face the same issue: they pump out the same amount of oil or gas, but when the ruble is strong, their revenues expressed in domestic currency fall.
A quiet conflict over the exchange rate
This is where internal tension arises. The central bank has a clear goal of stabilizing prices and believes that a strong ruble helps, because it reduces imported inflation. Fiscal authorities and industry have a different interest, because a weaker currency would make it easier to fill the budget and boost exports. As a result, a quiet conflict plays out over the year, in which the state sometimes encourages ruble strength and at other times tries to prevent it from becoming too strong. One moment it sells foreign currency from the sovereign fund to calm the market; the next it announces a reduction in those sales to appease exporters. As soon as the exchange rate shifts significantly, one side raises its voice—it is simply how it works—and compromises are sought on the fly.
Every country that trades internationally has the same quiet conflict over its currency. Those who import a lot prefer a strong currency, because foreign goods become cheaper and domestic prices rise more slowly. Those who export a lot prefer a weaker currency, because they receive more domestic money for the same goods sold abroad. The state constantly stands between these two sides. If it allows the currency to strengthen too much, exporters complain and the budget fills more slowly. If it allows the currency to weaken too much, prices rise and citizens lose purchasing power. That is why exchange rates are rarely left entirely to themselves. Instead, authorities constantly try to maintain some middle ground, aware that every currency move helps someone and immediately creates problems for someone else.
What the exchange rate does not say
If the ruble is viewed in the same way as the euro or the pound, one might conclude that its strengthening proves the resilience of the Russian economy and the ineffectiveness of sanctions. But that ignores the fact that the ruble market today is something completely different from what it was in 2021. Capital does not flow freely in and out, Western banks and funds hardly participate, the population has limited access to foreign currencies, and exporters’ foreign-currency revenues are partially nationalized through mandatory conversion. In such an environment, the exchange rate becomes more of a political instrument.
As for sanctions, they have reduced imports of technology, restricted access to Western financing, and redirected Russian trade toward China and elsewhere. They have also forced the Russian authorities to spend part of their foreign-exchange reserves and rely on domestic borrowing and high interest rates. But precisely because the system is so tightly constrained, the exchange rate can look impressive. Reduced imports significantly cut demand for foreign currency, while forced sales of exporters’ foreign currency increase supply. In the middle of this stands the ruble exchange rate, which looks strong this year even as parts of the real economy are already struggling with the consequences of war mobilization and fiscal pressure.
Stability without prosperity is still stability
In the end, the question of sustainability remains. The current combination of high wartime spending, high interest rates, and capital controls can keep the ruble strong and inflation under control for some time. In the long run, however, such an arrangement has clear limits. High interest rates stifle private investment and consumer lending. A strong currency under wartime conditions hampers exporters and eases imports precisely when the state would prefer the opposite. Foreign-exchange reserves used for interventions are not infinite. If war costs continue and global demand for Russian energy weakens, the ruble will struggle to rely on the same combination of factors.
The ruble, therefore, is not proof that Russia is an economic winner, but rather an illustration of how far a state can go in managing its currency when it is willing to sacrifice part of its long-term growth dynamics. What the exchange rate does show is that a wartime economy can produce stability in a single number, while behind it a slow accumulation of internal imbalances is taking place.
In that sense, it is also necessary to acknowledge what is obvious but often left unsaid. Despite unprecedented sanctions and a prolonged war, the Russian economy has neither collapsed nor descended into uncontrolled chaos, as many predicted in 2022 and 2023. The system has shown an ability to adapt—above all through rapid trade reorientation, a strong role for the state, and a willingness to sacrifice elements of growth. A strong ruble, however administratively shaped, has enabled inflation control, preservation of basic financial functionality, and predictability crucial for a wartime economy. This creates the impression that Russia can endure longer under these conditions—clearly not as a prosperous economy in the classical sense, but as a system capable of maintaining internal balance, financing a war, and avoiding the scenarios of sudden collapse its adversaries had counted on.
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