“With debt issuance out of the equation, Russia is now forced to turn to plan C: tapping into its savings. On paper, such a strategy could work for a while thanks to the vast holdings that Moscow accumulated in its National Wealth Fund (NWF) in the 2010s. However, these savings are now drying up: The liquid part of the fund has shrunk by more than half since the start of the war in Ukraine, to just $54 billion in September. Last year, the government stopped saving money in its NWF. Moscow is now resorting to selling the portion of its NWF reserves that it holds in gold; the fund’s gold reserves have shrunk by around half, or about 262 tons of gold, since early 2022.”
262 tons = around $8 billion my math may be off.
“With debt issuance out of the equation, Russia is now forced to turn to plan C: tapping into its savings... However, these savings are now drying up”
The final resort (short of going to a full communist/fascist command economy), is simply printing even more rubles, inducing even greater inflation.
They have already been pulling that lever hard, since the 2022 invasion. Despite the lag time between excess currency printing and the resulting inflation, they are already deep into an inflationary cycle.
Even if they could stop today (which they can’t, due to war costs) they will still suffer the very significant inflationary results of the excess money supply expansion that they have already committed, for at least the next year or two, no matter whatever countermeasures they impose (like 21% interest rates).
The flip side of inflation, is that the currency drops in value. They can’t keep propping the ruble up forever, as the underlying fundamentals continue to erode.
As they have continued expanding the total supply of rubles an extraordinary 20-25% per year - during first COVID, and then continuing through their war in Ukraine - they have created snowballing pressures for increasing inflation, and to devalue the ruble.
They have used all kinds of exceptional measures to delay these somewhat inevitable results, but math will have its day.
“Moscow is now resorting to selling the portion of its NWF reserves that it holds in gold; the fund’s gold reserves have shrunk by around half”
It is unlikely that they would completely zero out the National Wealth Fund (NWF), but rather that they will throttle up other avenues of funding, while tapering off withdrawals from the NWF.
They can increase taxation, cut non-Defense spending, sell off Government assets (like land or mineral rights), Nationalize private accounts or property (straight out steal) - or they can Print, Print, Print more rubles.
Those options are economically and politically more painful than spending from the NWF, but of them, the ruble printing is the least politically painful, because it is the easiest one to mislead the public about the cause of the pain, when it manifests. Blame the Jews, blame Western spies, blame price gouging businessmen (See: Kamala Harris).
If the war continues, Russian finances cannot continue on a straight line indefinitely. There will be major inflection points as the reserves run out, and as the currency weakens. There is growing risk of hyperinflation.