Translated material
Ruble war
The authors of the bill "On the monetary policy of the Russian Federation" decided that if someone does not want to recognize the ruble as the world reserve currency "in a good way", Russia will do it "in a bad way". The causes and consequences of a possible "ruble war" were analyzed by The New Times
One of the financial ideas formulated by Dmitry Medvedev when he was still a presidential candidate is to make the Russian ruble an international reserve currency. When the winds of the global financial crisis hit Russia in early spring and the dollar plunged once again, the same thought was echoed by incumbent President Vladimir Putin and Finance Minister Alexei Kudrin. According to the latter, the effective exchange rate of the ruble has appreciated by 85% over the past 7 years. So the idea is wandering in the minds of representatives of the Russian authorities to turn the Russian national currency into a reserve, at least at the regional level - in the CIS countries and its environs.
In fact, what’s bad: the dollar is part of the foreign exchange reserves of the central banks of most countries of the world, as a result of the fact that, God forbid, the American monetary unit does not collapse, not only the Federal Reserve System takes care, but also, for example, the Bank China, whose colossal foreign exchange reserves are mostly denominated in dollars. It would also be good for the whole world to take care of our former "wooden". But here's the problem: in order to make the ruble a reserve currency, even if it's a regional one, the desire of the Russian authorities alone is not enough. It is necessary to ensure that the central banks of other states place their bets on this currency, believing in its reliability and stability. The dollar, even losing weight, relies on the strength of the US economy, which leads the world's GDP by a wide margin. Russian GDP, although it has been growing at a good pace in recent years, has so far reached only the last places in the top ten in the world. Well, the short history of the Russian ruble, alas, is replete with crises...
What is offered?
Well, if someone does not want our ruble to be “credited” to the reserve in a good way, we can do it in a bad way. The bill "On the currency policy of the Russian Federation" is now being considered in the presidential administration and soon, as its authors, a group of business representatives, say, it will be submitted to the State Duma by deputies from United Russia. This draft law formulated a number of theses, which, in the opinion of its authors, are designed to elevate the Russian national currency to an unprecedented international height. Here are some of the most "shocking" - point by point.
First. Stop the formation of international reserves of the Russian Federation in "foreign credit" categories: foreign securities, cash currency and deposits in banks with a head office outside of Russia, funds in the form of reverse repos.
Second. Prohibit civil servants from promoting a weak ruble. Commenting on this thesis, one of the authors of the bill, head of the financial institutions department of OTP-bank Igor Suzdaltsev, recalls the well-known axiom of the foreign exchange market: "If you want to kill the country, kill the currency."
Third. Refuse to use the dual-currency model of the Bank of Russia as an intraday operational benchmark: it makes the ruble exchange rate dependent on the dollar-euro exchange rate and does not allow the ruble to strengthen both against the US dollar and the euro at the same time.
Fourth. To oblige Russian currency exchanges and brokerage companies to accept the ruble as the base currency in currency pairs and quote foreign currencies against the ruble, and not vice versa.
Fifth. Ban the export of energy resources to countries that do not have the Russian ruble in the structure of foreign exchange reserves of their central banks, and transfer all settlements under export contracts of companies - residents of the Russian Federation into rubles.
Why is it impossible?
Needless to say, all these theses sound very ambitious. However, upon closer examination, they can rather be called odious. Let's try to prove this - and also point by point.
Second. The first of the government officials who could fall under the article, if the bill had already been passed, would be Vladimir Putin. At one of the recent meetings with ministers, he expressed concern that the ruble was not strengthening too sharply. And the president has something to worry about: the overvalued national currency primarily threatens domestic producers, lowering the competitiveness of their products. As a result, GDP growth rates are under threat.
Third. It was the dual-currency basket that has recently made it possible to smooth out sharp fluctuations in rates on world markets. After all, as a rule, if the dollar fell, then the euro grew. Accordingly, the ruble did not lose much of its balance point. If the dual-currency basket is abandoned, the ruble can not only strengthen against both the dollar and the euro, but also fall - already without any "insurance".
Fourth. With the proposed version of quotations, the exchange rate of the ruble against the dollar, for example, on April 3, 2008 was equal to 0.04224. Perhaps, from someone's point of view, this looks prestigious, but it is extremely inconvenient for ordinary people and forex market players to operate with changes in the fifth digit after the decimal point.
Fifth. This paragraph of the bill smacks of energy blackmail. But it can strike first of all at Russian companies. For example, Gazprom is linked with many countries by long-term export contracts for decades to come, naturally denominated in dollars. To break them unilaterally means to run into colossal penalties. We must be realistic: it is impossible to force the world to trade energy resources for rubles. Even its internal oil exchange in St. Petersburg with the idea of trading for rubles, despite lobbying at the highest level, Russia has not been able to launch for many years. Companies in the conditions of a free world oil market are unprofitable and uninteresting.
Chamberlain's response
“The struggle of currencies for reserve status is a war where everyone is against everyone, there are no allies and no prisoners are taken,” Igor Suzdaltsev explained the logic behind the draft law. But in war as in war, one should expect adequate retaliatory steps from a potential adversary. For example, Western banks' refusal to lend to Russian companies, which for many of them is fraught with an immediate default. Or the accelerated laying of alternative pipelines - bypassing Russia (the question of their economic efficiency will not even arise then). All this is unlikely to strengthen the prestige in the world of both the ruble and the country that issues it. Swinging an energy club is a very dangerous occupation, including for the one who has it in his hands.
Will the ruble continue to strengthen and how positive is this process for the domestic economy? Does the ruble really have a chance to become one of the international reserve currencies? – our experts talk about it
Pavel Medvedev, Deputy of the State Duma
The position of the ruble will very much depend on the price of oil and on the ratio of the dollar and the euro. We need to crawl between Scylla and Charybdis. If the ruble weakens too much, the credibility of Russia will fall. And if it strengthens, the economy will begin to limp. The strengthening of the ruble is acceptable, but not too fast. Yes, the ruble is increasingly becoming a convertible currency. For example, in Zurich, local banks accept deposits in rubles. In the CIS, the ruble is already largely a means of payment. But I think it will not look like a dollar very soon. Because here it is necessary to keep in mind not only the objective, but also the subjective properties of the ruble. People all over the world need to get used to it - as they once got used to the French franc, then to the dollar, now to the euro. It is rather difficult to impress people with the idea that the ruble has become a reliable currency. I think it will take another ten years.
Oksana Dmitrieva, Deputy of the State Duma
The fact that the ruble is strengthening is, of course, bad for the economy. Both for domestic production and for import substitution, the monetary policy of the Central Bank is harmful. In order to prevent excessive strengthening of the ruble, in my opinion, it is necessary to pursue a policy of its devaluation in a clear peg to the dollar or in line with inflation. You should buy dollars and sacrifice a few percentage points for inflation. But the Central Bank is not going to change its policy, so the ruble will continue to strengthen. It's a pity: if there had been a different policy towards the ruble, the economy could have become more diversified. In general, the position of the ruble in the world depends on the stability of the country's economy. So far, I do not see any special prospects here: for the ruble to become an international currency, a significant increase in the Russian share in world trade is required. Now our contribution to exports is just over 2%, and for imports - just over 1%. This is very little!
Alexander Khandruev, First Vice President of the Association of Regional Banks
A steady trend has emerged that imports are growing at a much higher rate than exports. The positive balance of payments is melting before our eyes. And this means that the ruble is overvalued. This means that in the foreseeable future, the reverse process may begin in the market - the weakening of the ruble. De jure, the ruble is a freely convertible currency. But de facto, the volume of its use in this capacity is still negligible. True, already now in Finland or Turkey you can easily exchange rubles for local currency, dollars or euros. Besides, if Russia has a stable trade balance, let's say, in trade with Kazakhstan, and if the central banks of both countries have correspondent relations, why not pay for Russian goods in Russian rubles? It's better than converting them to dollars. If market agents feel that it is beneficial for them, they will keep their assets in rubles. And then the ruble will become a recognized de facto currency.