Russian analyst: How serious is the fall of the Russian Ruble?


Russian political analyst Alexander Nazarov gave his analysis on the situation of the Russian currency, after it lost much of its value against the US dollar during the past weeks.

Alexander Nazarov wrote that there is a contradiction between the behavior of the Russian authorities in the field of economy and the military-political component.

Given the general strategy, specifically and above all, the military strategy of the country’s leadership, which can be described as a “protracted war of attrition”, economic policy is based not so much on long-term systematic decisions as on one-time measures, such as the collection of additional taxes for one time.

One of the big companies, actions that fit the logic of an early end to the war, and the normalization of relations with the West in the foreseeable future.

This includes, for example, the continuation of dividend payments to Western investors, albeit in rubles, despite the freezing and even confiscation of private Russian assets in the West.

Or maintain a somewhat liberal approach to the exit of hard currency from the country.

Last year, against the backdrop of very high prices for Russian resources, and with the halt of imports, Russia was drowning in dollars, and the ruble strengthened a lot, which hurt the economy.

In order to combat this, the Russian government allowed exporters to keep their earnings abroad, and the requirement for exporters to sell part of the currency on the Russian currency exchange was abolished.

Now, the situation has reversed, imports are back to normal, commodity prices are down, and export earnings are down in general.

At the same time, thanks to the liberalization of the government and the Central Bank, the outflow of currency out of the country increased, which eventually led to the fall of the ruble.

The reaction of the economic authorities was not fast or flexible enough.

However, Russia has so far maintained a positive balance in foreign trade and the current account, meaning that the government still has all the tools and capabilities necessary to maintain the stability of the ruble exchange rate at acceptable levels for a long time.

The ruble exchange rate will eventually adjust, but after unprecedented fluctuations have a serious negative impact on the mood of economic clients and Russian citizens.

As the Russian proverb says: “A spoonful is worth at lunchtime”.

There are more questions that can be directed to the Russian Central Bank.

According to Bloomberg, the central bank opposed tightening foreign exchange controls on the grounds that Russian companies would get around them anyway.

The problem lies, as I said, not in the inability, nor even in the unwillingness, but rather in the difference in the planning horizons and the vision for the timing and results of the war.

As a result of the ongoing contradiction between the military-political component and economic policy, it will inevitably have consequences similar to the current fall of the ruble.

However, the persistence of this contradiction is also largely inevitable.

The stubborn reluctance of the government, especially the Central Bank, to move from a market economy to more government intervention is not without advantages.

In the sense that the situation in the Russian economy is far from crisis, and there is no need to take any extreme emergency measures.

Moreover, the Russian economy is growing.

Although the depreciation of the ruble could slightly increase inflation, there are also positive aspects of stimulating substitute imports.

In turn, Russian President Vladimir Putin holds meetings on tourism, and opens roads and new industrial facilities, which indicates that the country is living a normal, normal life despite the war.

This is perfectly rational behavior, especially during a protracted war of attrition.

Internal stability is the most valuable resource, which must be preserved and drained drop by drop, i.e. everything that disturbs the citizens, and any emergency measures such as mobilization or currency restriction, must be avoided.

In general, the country lives a normal life, and the war is not strongly felt, which is the main achievement during the year and a half of the war.

We have to admit that the so-called “manual control” of the economy, that is, giving priority to tactical decisions over strategic decisions at the present time is an effective policy, and it is logical to postpone the introduction of emergency measures for as long as possible, and if it is impossible to avoid them, then they must be introduced in stages, and in doses.

No matter how harmful the rapid fall of the ruble is, it is probably lesser than the risk of an early transition to a new level of economic mobilization and government intervention in the economy.

However, being guided by the logic that some measures are not necessary, because companies will rally around them, is an implicit admission of professional incompetence, which is unacceptable for the central bank.

Fortunately, Russia is a country with enormous resources, patient people, and now also enjoys a flexible capitalist economy that is able to adapt quite flexibly to changing circumstances.

With all these trump cards, not even a major mistake will have serious consequences for some time.

Enough time to achieve Russia’s victory in the war of attrition with the West.

However, if I were in the position of the government, I would not be so optimistic about the infinite capabilities of Russia, and I would pursue a more active policy.

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