Market Loop - 📉Rouble trouble

RUSSIA
Russian currency plummets to record low

What’s going on?
The Russian rouble collapsed to a record low against the dollar and its central bank more than doubled interest rates from 9.5% to 20% in response to unprecedented sanctions from the West.

Why is this important?

The Russian rouble is under immense pressure as the effects of the suite of economic sanctions imposed by Western allies begin to bite.

The value of a country’s currency is a proxy for general confidence in its economy and when its under pressure, the central bank can use its reserve of foreign cash to prop up the value.

But the sanctions imposed on Russia by Western allies has made it difficult for the country to do this. As a result the central bank has doubled the interest rate to 20% to encourage people to hold on to roubles.

But this hasn’t been effective, and the buying power of the rouble has tumbled. This, along with an inability to import or export goods and services thanks to the economic sanctions, will lead to higher inflation. 

Ordinary Russians are now queuing at cash machines and banks to withdraw their savings and buy other currencies like the dollar, amid fears of cash shortages.

Zooming out

FINTECH
Klarna losses balloon as it chases growth

Klarna recorded another huge loss last year as the Swedish buy now, pay later giant pursued growth by entering 10 new markets.

Founded in Stockholm in 2005, Klarna pioneered BNPL which allows customers to spread online purchases over multiple interest-free payments instead of using a credit card.

The sector has flourished in recent years as ecommerce has rocketed during the pandemic. A recent survey found that one in five Brits now using BNPL. But the industry has drawn criticism from debt charities that warn that the services encourage people to spend beyond their means.

The popularity of the service is global and Klarna’s user numbers jumped by 70% in 2021 to 147m across 45 countries. That helped increase the total value of transactions on its platform by 42% and the firm’s revenue rose by 38%.

But the amount the company is left out of pocket when users don’t repay the loans – known as credit losses - almost doubled to $500m. Klarna insists this isn’t a cause for concern as 99% of loans do get repaid.

With a $46bn valuation, Klarna is Europe’s most valuable fintech so arguably has the financial resources to sustain such losses, for now. But the high growth of the sector is attracting not only new BNPL firms like Affirm, Afterpay and Zilch but also banking apps like Monzo and Revolut and traditional banks like Barclays.

Despite no signs of turning a profit soon, Klarna is still planning to become a listed company at some point in future. The UK government recently launching a charm offensive on the firm and other fintech giants to tempt them into listing in London.