As 2024 nears its end, the Russian economy finds itself in a turbulent state, flooding the airwaves with alarming developments that paint a grim picture of its financial landscape.

A staggering rise in the benchmark interest rate to 21%, coupled with consistently high inflation, hints at a government that is considering implementing a rationing system akin to a food stamp program to stabilize prices. How did this nation, once boasting its vast resources, reach such an alarming juncture?

As the conflict drags into its third year, the alleged economic benefits that were thought to arise from war are increasingly overshadowed by the deep-rooted vulnerabilities of the economyThe notion that Russia could grow wealthier through combat has been rendered absurd; instead, the costs of war are mounting, leading to a dismal economic outlook.

With the ruble depreciating, prices soaring, businesses shutting down, and the purchasing power of ordinary citizens plummeting, these compounding issues exacerbate Russia's economic plight.

From the battlefield to the marketplace, Russia is undergoing a critical survival test that threatens its core economic stability.

So, what exactly does a 21% interest rate mean?

When juxtaposed with the United States' benchmark interest rate of just 5.5%, which has already exerted pressure on the American economy, Russia’s 21% seems like an axe poised over its economic neck.

Why resort to such a harsh interest rate hike? The pressure of rampant inflation has left Russia with few viable options.

Forecasts predict that by December 2024, Russia's inflation could rocket to 9.2%. Notably, food prices have surged alarmingly—staple items like potatoes and onions have seen price increases of nearly 30% compared to the same period last year.

Indeed, inflation has impacted everyday consumer goods, with an inflation rate reaching 13.7% between January and September

This indicates that the cost of living is steadily inflatingShould inflation continue unchecked, social stability in Russia could be jeopardized.

Faced with such dire circumstances, the Central Bank of Russia had no choice but to employ the "brutal medicine" of raising interest rates to curb rising pricesHowever, the side effects of such a policy resemble a dangerous gamble; high-interest rates may worsen the economic situation.

This drastic interest rate hike inevitably raises borrowing costs substantially, particularly suffocating for small and medium enterprisesTypical manufacturing profits hover between 5% and 15%, meaning a 21% interest rate could render many businesses unviable.

Countless small businesses are forced to downsize, or even close their doors, leading to diminished job opportunities and a lack of economic dynamism.

Some analysts in Russia have candidly remarked, “A 21% interest rate is a death knell for businesses, not a lifeline for the economy.”

What about the return of the rationing system? For many, the concept of food stamps evokes memories of wartime scarcity, yet as late as 2024, Russia is resurrecting these outdated measures.

Why has the rationing system resurfaced? Despite high food production levels, why are inexpensive food items out of reach?

Although Russia ranks as one of the world's leading grain exporters, the pervading issues of skyrocketing grain prices, imbalances between supply and demand, and rampant speculative activity have rendered staple foods unaffordable for average citizens.

The ruble's devaluation has driven up prices, breaking the 100:1 mark against the dollar while plummeting more than 25% in value, causing the cost of imported goods to soar.

Prioritizing exports has also created domestic supply-and-demand imbalances, as profits from selling agricultural products abroad outweigh the benefits of supplying the local market, leading to ongoing price inflation.

The government’s imposition of a Food Stamp system essentially aims to “control prices,” distributing food directly to the public without currency transactions to avoid chaos stemming from currency devaluation.

However, this wartime economic model reveals that the Russian economy has truly descended into a deep crisis.

In implementing food stamps, market freedoms may be curtailed, further crippling economic vitality.

If ration prices fall below market value, farmers’ income could take a significant hit, compelling them to plant less, thus exacerbating supply chain issues.

This conflict is not merely a military maneuver; it has escalated into a protracted economic contest

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Russia finds itself sandwiched between pressures from the battlefield and the market.

From the onset of hostilities, Western nations imposed extensive sanctions on Russia, with the most damaging being the freezing of $300 billion in foreign exchange reserves and restrictions on energy exports.

Although Russia intends to pivot its energy exports towards Asian markets, the contraction of its traditional European market has markedly reduced its foreign currency income.

As the ruble consistently depreciates, citizens’ purchasing power diminishes, causing an acute increase in the prices of imported goods and exacerbating domestic inflation further.

Once seen as Russia’s “cash cow,” the benefits from energy exports have notably shrunk.

According to the International Energy Agency (IEA), revenue from energy exports in 2024 is projected to decline by 15% compared to 2023.

For the year 2024, military spending is set to consume over 5% of GDP, inflicting substantial pressure on the national budget.

In simple terms, the “capital” for warfare is nearing exhaustion, while the “chains” of sanctions tighten evermore.

Interest hikes, food stamps, and the ruble's depreciation signal that Russia is grappling with its most severe economic crisis since the Cold War.

As the conflict drags on and Western sanctions intensify, Russia must reevaluate its economic strategy.

However, crises can also harbor opportunities for improvement