Ruble collapse: Freakish Russian ruble rout is unlike any currency crisis in history

As the Russian ruble continues to fall to new record lows on an almost daily basis, it's tempting to look to history for precedent.

There are two obvious go-to cases: the Russian financial crises of 1998 and 2008. For most analysts, it's the former which is most similar, but large elements of today's case place it in territory that's unique.

A large part of Russia's problems today come from an over-reliance on oil exports. Oil sales bring in 70% of Russia's exports value. As IBTimes UK went to press, Brent crude oil dipped below $59 per barrel for the first time since 2009.

Russia needs oil to be selling at $109 per barrel in order to break even. So while some of the more conservatively budgeted Gulf states - who have break even points of $73 (UAE) and $53 (Kuwait) - are sheltered from the fluctuations in price, Russia is in a world of trouble. Even without the sanctions regime and the crisis in Ukraine, Russia would be in serious bother now.

Loss of confidence

In 1998, Russia's troubles were in part due to plummeting oil prices. The Asian financial crisis led to falling demand for crude oil, as well as non-ferrous metals (another of Russia's biggest exports). Moscow was also paying the price for a costly war in Chechnya.

The subsequent result was the central bank devaluing the ruble and defaulting on domestic debt. It issued a moratorium on payments to overseas creditors. The economy received a $22.6bn bailout package from the IMF and World Bank.

The currency has not reached 1998's lows yet, but the parallels are clear.

"We're currently trading weaker than we were in 08/09, which may bring parallels to the weakening in the currency in 1998 against the dollar. Effectively the ruble lost 80% of its value over the course of one year," Michal Dybula, chief economist for Central and Eastern Europe at BNP Paribas, told IBTimes UK.

"We're not there yet, but the bad memories are coming back, especially as people are exchanging euros in Moscow and other big cities, converting rubles into other currencies. That's a very dangerous thing because once the public confidence in your own currency vanishes, authorities have a much bigger problem than if it's purely financial or corporate flows out of the country."

It's more difficult to compare the Russian situation today with currency crises in other economies. The most notable examples are the Argentine peso crisis which ran from 1998 to 2002 and the Mexican peso crisis of 1994. The Argentine crisis is considered to be anomalous and bears little comparison to any other (save the fact that it was in part sparked by the Russian crisis of 1998).

In the Mexican case, the most obvious point of connection is the presence of enormous capital flight. It's estimated that $200bn has left the Russian economy through capital flight this year alone. This dwarves the $50bn which is estimated to have left Mexico in 1994.

A perfect storm

But the fact that Russia today has such a large current account surplus and that it has such substantial foreign currency reserves mean it is utterly distinct from the Latin American examples. Furthermore, the fact that the ruble crash also stems from the economic sanctions regime placed on Russia by the West place it into a different category than currency crises of yore.

"Russia today is a very different case," Neil Shearing of Capital Economics told IBTimes UK. "It is running a current account surplus to offset capital outflows and the balance of payments. Then oil prices fell and current account surplus has diminished and you're left with a hole in the balance of payments. That's putting pressure on Russia. In the case of Asia in 1998 and the Latin America examples, they were running big current account deficits. It's not necessarily applicable."

The view is shared across the economist community. Tim Ash of Standard Bank finds it baffling that a country with an estimated $413bn in foreign reserves can let its currency plummet to such levels. While the central bank spent some $80bn on propping up the ruble over most of the year, the majority of the losses have come in the weeks since it decided to stop this intervention.

"It's unusual: you can understand it for a country like Ukraine. It's facing massive challenges, no foreign exchange reserves, and twin deficits. It's basically on the brink of bankruptcy, yet Russia isn't. It has in theory lots of options and yet the central bank has set back and let it happen. It is almost a dereliction of duty. It's staggering. Nobody predicted this," said Ash in a telephone interview.

While there are certainly superficial comparisons to be drawn with crises of the past, the feeling is that the ruble rout of 2014 is a unique case. A perfect storm of geopolitics, economic sanctions, capital flight and oil price collapse have combined to pummel the ruble day in, day out.

So while lessons can be learnt from the past, the sense is that Russia's policymakers are going to have to come up with an innovative raft of solutions to deal with the freakish currency problem it finds itself faced with.