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| Ruble Collapse: Why the Dollar is Growing and What Will Happen to Prices on Everything | ||
| 2024-11-29 | ||
| Direct TRanslation via Google Translate. Edited. by Egor Aladin [REGNUM] The last few days have been extremely nervous for the ruble exchange rate: yesterday it fell from 105 to 108 rubles per dollar, today it is weakening again. But the panic after yesterday's decision by the Central Bank to stop buying currency has been stopped. What do the Central Bank's actions mean, how will they affect exchange rates, and what dollars should you look for in exchange offices? There are several fundamental reasons for the weakening of the ruble. Since Donald Trump's victory, the dollar has been strengthening against major world currencies. According to the International Monetary Fund, it accounts for 80% of trade transactions.
Panic, which traditionally overtakes Russians during sharp fluctuations in the exchange rate, added two or three rubles to the exchange rate. As economists say, objectively, the dollar in the current conditions cannot cost more than 110 rubles, that is, forecasts of 120-150 rubles are devoid of economic basis. Unless, of course, geopolitical tensions enter a new round. WHAT EXACTLY IS THE CENTRAL BANK DOING? During a period of panic, communications with the population must be simple and clear. Unfortunately, the Central Bank issued a release yesterday with a clear delay, and it turned out to be so jaw-dropping that it needs to be translated, although it calmed the situation in many ways. So, the Central Bank announced that it will not buy currency on the domestic market "as part of mirroring the regular operations of the Ministry of Finance related to the implementation of the budget rule." At the same time, it will continue operations to sell currency for the use of the National Welfare Fund (NWF). The meaning of the budget rule is simple: if there is a lot of oil and gas revenue (the base figure is 8 trillion rubles per year), then the surplus goes to the National Welfare Fund by purchasing Chinese yuan. If oil and gas revenues fall, then the Central Bank, on the contrary, sells the currency. The Central Bank buys and sells currency on behalf of the Ministry of Finance, that is, it acts as its agent. At the same time, to finance investment projects and current expenses, the Central Bank must sell part of the reserves. That is, carry out two operations simultaneously. Since yesterday, the Central Bank had to buy 4.2 billion rubles of currency daily for the Ministry of Finance and sell the equivalent of 8.4 billion for budget needs. It is clear that there is a "mutual offset" or mirroring of these transactions. As a result, 4.2 billion rubles of currency entered the market. Now there will be twice as much to reduce the excitement. The Central Bank has acted in a similar way before to stabilize the exchange rate - most recently in 2023. Then the moratorium on the purchase of currency lasted for four and a half months, and, characteristically, also in the second half of the year. All other things being equal, the rate will be trying to find its balance in the near future. It is not yet clear how sanctions will affect the inflow of currency to our market in the short term, so sharp upswings and downswings in the rate are quite possible. At closed meetings at the Central Bank regarding the organization of international settlements, such security rules apply that no leaks are possible, but they are not in the interests of participants in foreign economic activity. "Work is underway" is the most that can be heard from officials. Therefore, the actions that the Central Bank will take after the Americans "sanction" Gazprombank are a closely guarded secret. And anyone who claims to know the regulator's decision for sure is an info-gypsy and a swindler. The main thing is that there are bypass and maximally non-public ways to receive foreign currency earnings to the accounts of Russian banks, but, unfortunately, they require additional costs that will be passed on to the final recipients. Including households, that is, to the wallet of an ordinary citizen. WHAT SHOULD PEOPLE DO? In principle, there are no particular problems buying non-cash currency at a bank or through unsanctioned brokerage companies. Another issue is that the difference between the purchase and sale rates may grow even more. And this currency cannot be withdrawn in currency itself - only in rubles. The issue with cash is completely different. As is known, the import of dollars and euros in the form of banknotes is prohibited in Russia. But there are ways to deliver them, and no one will talk about them openly, of course. Even in sanctioned banks, you can buy cash dollars and euros - and it is easier to do than last year. There are no queues at exchange offices. Even such banks offer the services of their partners to open Visa and MasterCard cards of foreign banks, primarily Kazakh, Kyrgyz and Armenian, with the ability to transfer funds in rubles. Thus, travelers, especially those who do not know how or do not want to deal with cryptocurrency, have a real opportunity to use all the usual services abroad. Such a real alternative to buying cash can also have a positive impact on the exchange rate in exchange offices on the eve of the New Year holidays. This will allow us to avoid another problem - the so-called old dollars. They are practically not accepted by Russian banks and are hardly accepted - and not everywhere - in popular tourist countries: Turkey, Vietnam, Thailand, UAE. This happens because the banknotes then need to be physically transported to the US for destruction, and transporting money costs money. In the case of domestic banks, such transportation is simply impossible due to sanctions, and the costs of air transportation are also quite high. Therefore, our citizens are faced with the fact that they have money in the form of solvent banknotes, but they are practically impossible to spend. Moreover, "old dollars" do not refer to the banknotes issued in the early nineties, as most citizens think. The old ones are those that are quite in use here, and the "new" ones are the banknotes with a blue 3D stripe, issued since 2013. WHAT WILL HAPPEN TO PRICES? In November, the ruble fell by 11% against the dollar, while the yuan, the main unit of account for foreign trade transactions, strengthened by 7% against our national currency. The exchange rate difference cannot but affect prices and inflation. A 10 percent weakening of the ruble gives an increase in inflation of 0.5 percentage points. If the current official inflation is 8.78%, then 0.5 percentage points bring it to almost 9.3%. The overall level is an average value calculated for 600 goods and services, which does not mean that each product has increased in price by exactly this “official” amount. The greatest dependence on imports is observed in the electronics, automobile, textile and pharmaceutical industries. Consequently, the increase in the cost of such products will exceed the general inflation rate. And households will have to take this into account when planning their family budget. Here we can expect a significant increase in prices, but it will occur with some time lag, which makes the inevitable rise in price more or less smooth - again, if there is no explosive demand against the backdrop of another panic. In the conditions of the huge dependence of the cost of everyday goods, even domestically produced ones, on imports (raw materials, technologies, equipment, etc.), words about ruble incomes and expenses, supposedly providing independence from the exchange rate, cannot be taken too literally. Everyone will definitely notice the increase in price. | ||
| Posted by:badanov |
| #2 Woo-boy! Russian economics. Sorta like Russian physics, but less comprehensable and totally untestable. |
| Posted by: ed in texas 2024-11-29 08:19 |
| #1 The Ruble was down to 113/1 against the Dollar Wednesday morning Central Time, so it has recovered slightly. Of course, with the Russian Central Bank cutting off trading, there won't be any accurate exchange rate figuress until after the first of the year or whenever they decide to open up again. |
| Posted by: Mullah Richard 2024-11-29 07:10 |