Russia got off the currency needle, and didn't even realize it.
As I write these lines, one euro is given for one hundred rubles. And a joke goes around the Web that this is, of course, much more convenient: it is easy to do the calculations in your head. Many, however, fear that the convenience will not last long, and that the euro will be over a hundred. You, the users reading this text, already know where the rate has moved.
But what is going on?
THREE BROKEN LAWS
First, about what is not happening. Before our eyes, seemingly immutable rules, even laws, which in a couple of decades have acquired in the mind the status of almost a law of nature (by the way, another proof that economics has laws like a rod: did the acceleration of gravity or the speed of light change in 1917), are being abolished. These are the rules.
- Oil down – ruble down, and vice versa.
Oil is not trading very expensive, not at historical highs, but quite stable, and, most importantly, future prices (futures) are not peaking down either. Thus, the ruble exchange rate is sort of detached from the value of oil. By the way, we wanted this (remember the endless debates about the "commodity needle" in the zero years);
- Bright and unpleasant political events collapse the ruble.
On June 24 and immediately afterwards, it was as if nothing had happened in the markets. You might argue: Saturday. But do the markets observe Saturday? The weekend did not prevent airfares from skyrocketing, and Sunday did not prevent them from returning. According to the laws of the genre, we would have had a crisis and panic on Monday, with the opening of the exchanges. But the market stopped reacting lightning-fast and hysterically to politics.
- The ruble falls if the state of the economy is very bad.
And again, no. The government and statistics present a pretty good picture of the Russian economy. Even "I've had worse" is not good here – there is no crisis in the Russian economy at all. There are those who would like to debate what kind of inflation the regulator has in mind and how to calculate it correctly; what are the methods of calculating GDP; how are the statistics collected in general – this is for experts. For us, the general public, it is enough to know that the economy, generally speaking, is good.
BUT WHY IS THE RUBLE FEELING SO BAD?
If you read the news, you will be amazed at the abundance of interpretations. It is understandable: the old clichés do not work, and the first thing analysts do is pull the owl of old experience onto the globe of new circumstances. I have an opinion, which certainly does not exhaust the richness of the economic picture, but perhaps at least explains something.
The main thing I want to say is that the dollar and the euro are out of our lives; they are almost gone. Accordingly, the ruble mass in Russia prevails over the rest of the foreign currency mass. We keep counting the exchange rate in the following way: a lot of roubles, not enough dollars, an imbalance, and the rouble is cheap. In other words, it's as if we are equating the two masses, the ruble and the dollar, considering their value equal, and judging the strength of a single ruble by this. Of course, the old-timers don't remember why this was the case. But our grandfathers thought so, they bequeathed to us, and who are we to cancel it?
Where did the dollars go?
- Russian foreign currency reserves are frozen, or probably stolen;
- opportunities for banks to conduct international transactions are limited, and often even absent. You need a hundred million "greenbacks" for lunch, and in the evening you can't roll them back into rubles;
- foreign goods are sold in Russia were mostly purchased directly with yuan, rupees, and other money with unusual names, and the dollar was not even an intermediary in this transaction (the share of the ruble-yuan pair in trade with China was, for example, 80%);
- Personal contacts of our compatriots with the dollar and the euro have been minimized. People have fun in Turkey and Thailand, not on the Cote d'Azur, they buy tours for rubles in "offline" travel agencies (goodbye, digitalization!), they convert something there under palm trees and somehow get by, but in general no one really flies anywhere, they sit at their dachas.
The example of India is very revealing. It has become almost the main buyer of Russian oil. Trade is carried out in the ruble-rupee pair (sounds nice, doesn't it?). As a result there are billions of rupees in the accounts of Russian companies in India, and it is not quite clear what to do with this. Sanctions prevent them from transferring dollar to Russia. Sanctions, as well as the general lack of a mechanism, do not allow simply transferring rupees to Russia and turning them into dollars here (and if you tum them into rubles, you will finally collapse the exchange rate). Finally, the notorious uncertainty also hints that we should let the rupees lie there for now. The result: the oil was sold, but there is no dollar in Russia. In Russia, there is a formal shortage of dollars. And formally the ruble is falling.
It's like that with everything. With the yuan. With the few dollars that the Russians took to Thailand and exchanged them for local money. The dollar is leaving Russia (we wanted it so badly). It is getting scarce. And this weakens the ruble.
WHAT TO DO AND WHAT WILL HAPPEN
All analysts agree that the ruble is undervalued even against the yuan and the rupee, not to mention the dollar and the euro. Thus, in the medium term there is no need to wait for any collapse; the exchange rate will straighten out.
But that's in the medium term. And on the short run, there can be unpleasant moments:
- No one has cancelled the healthy desire of banks to speculate on the exchange rates. They're already doing it, and all such speculations lead to a weakening of the ruble. True, the ruble will still return to a reasonable rate, and the more furious speculation, the sharper it will be, which is also not healthy. According to a good tradition, the ruble will calm down at a level just above the one from which it started. Well, it's no surprise, the market is the market.
Although in fact the fluctuations of the exchange rate should not affect the wholesale and retail prices, they will do so because our favorite (apparently, this love is not mutual) small business, and after it, the medium business (large business keeps its decency), take any fluctuation in the exchange rate as an excuse to rewrite the price lists. It is not happening so fast as at the end of February 2022, but it is already happening. And it is not happening because the business is already feeling the bottom of purchasing power with its feet and understands that it does not have much room for maneuver. Simply no one will buy anything.
So, we will get some increase in prices (not two or three times, as some write, of course), which in addition will be mitigated by the traditional August deflation. The growth of the physical ruble mass may create problems by the end of the fall, but when it does, then we will write, especially since it has no direct relation to the exchange rate.
And it seems clear that it would be easy to avoid such swings. Since there is no free movement of currencies, because the West has destroyed freedom with its sanctions, there is no point in trying to "competitively" compare currencies. We must change the system of exchange rates. Otherwise it turns out like in a poor district hospital: for dinner there is only tea among drinks, but patients still have to vote for it and for coffee, which does not exist.
But it may be argued that this is interference in the market, speculation and the underground exchange rate. The regulator interferes in the market all the time, and there will be no black market or underground exchange rate, because the dollar and the euro are relevant only as a means of accumulation for the most fearful. No demand, no supply.