His war Vladimir Putin vs Ukrainian it has an extremely paradoxical and, for many, a particularly beneficial side effect. By forcing many Russians into a mass exodus from their country, it leads to the simplest solution, which is none other than neighboring countries. But unlike what happens all too often in countries neighboring war zones, such as losing tourism revenue or hitting their foreign trade, the massive influx of Russians has boosted the economies of neighboring countries. And along with their economies, it strengthened their currencies. And the reason is that many of these Russians bring their savings with them, which they convert into the currency of the country in which they settle. As a result, the currencies of these countries rise most against the dollar, while the ruble falls spectacularly. The Russian currency is no longer a free-floating currency, and the surge it initially experienced in the early stages of the war was due to the establishment of capital controls. However, over the past two days it has fallen to its lowest level since early May, trading at more than 70.6 rubles per dollar, having previously fallen to 70.7550 rubles per dollar.

Tens of thousands of Russians have settled in Agriculture and to Armenia, in the mountains of the Caucasus, as well as in Tajikistan and Central Asia, bringing with them their multibillion-dollar savings. These small neighboring countries provide an ideal haven as Russians do not require a visa to enter their territory, their residents speak Russian, and there are no restrictions or controls on placing money from abroad in local banks. Thus, since the beginning of the year, the Armenian dram has strengthened against the dollar by more than 22%. According to data compiled by Bloomberg, the Armenian dram ranks first in the world among currencies that have risen in price this year. Meanwhile, the Georgian lari and Tajik somoni appreciated against the dollar by more than 16% and 10%, respectively. As Natalya Milkhakova, chief executive of Freedom Holding Corp, points out, “they are indebted to Russians who, for geopolitical reasons, settle in these countries and keep their money in the currencies of these neighboring countries, inflating their exchange rates.”

Huge capital inflows have strengthened foreign exchange reserves and improved the current account balances of countries such as Georgia, Armenia and Tajikistan.

Because of the war, remittances coming to Georgia’s banks from Russia have increased fivefold and account for more than 60% of all capital flows. According to the Bank of Georgia, they exceed $1.75 billion. As for Armenia, capital inflows almost quadrupled compared to the corresponding period in 2021 and reached $2.8 billion in the first 10 months of the year. According to the Bank of Armenia, in October they reached their highest level in at least 18 years. It is clear that Russian waves have a much greater impact on the currencies of small neighboring countries, mainly the former republics of the former Soviet Union. Kazakhstan, for example, has a population of 19 million, about six times the size of Armenia and Georgia, and also hosts a large influx of Russians. But unlike the other two smaller countries, its currency, the tenge, is likely to end the year with losses.

In addition, the economic benefits of neighboring countries were not a given from the very beginning of the war, and countries neighboring Russia expected to suffer as their most important and largest trading partner was subjected to Western sanctions. But massive capital inflows have strengthened foreign exchange reserves and improved the current account balances of these countries. Armenia’s economy, for example, posted double-digit growth in the second and third quarters of the year, with the country’s central bank upping its annual growth estimate of 13% from its previous GDP growth estimate of 4.9%. . At the same time, the Georgian economy grew by almost 10% in the 3rd quarter, and the IMF predicts its growth for the full year will be 10%.