It might seem a little odd to be cheering on the collapse in value of a currency. It does, after all, mean that the people of that country are becoming poorer. However, there are times when that is the right thing to be happening and right now in Russia is one of those times. It's good news, good economic news at least, that the Russian ruble is falling in value against the dollar. For that the exchange rate is falling, down through 80 rubles to the dollar today, is one of the things taking the sting out of the fall in the oil price for Russia. A falling exchange rate means that while the dollar oil price is falling, plunging in fact, the ruble price is falling rather less. This alleviates at least some of the pressure on Russia's government budget, something determined in rubles and largely fed by taxes on oil exports.
As to the news itself:
The Russian currency hit a historical low Wednesday as it went through 80 to the U.S dollar for the first time since the 1998 currency crisis. The ruble’s extended slide has occurred in sync with the decline in the price of oil, Russia’s chief export, reducing the Kremlin’s spending power and causing problems for President Vladimir Putin.
That's the bit that report isn't getting. The slide in the currency boosts the Kremlin's spending power. They now get more rubles per barrel of oil exported than they did. Sure, the falling oil price is working in the other direction but this currency fall mitigates that. That's why it's so good.
In a country where many consumer goods are imported, the ruble's drop will also push up inflation, testing the so-far robust public support for President Vladimir Putin in a year when Russia holds a parliamentary election.
Well, yes, but it also means that there will be more domestic production of those very same consumer items. Which is, in these times, just what that economy needs.
Think of it this way. For a country, like Russia, which lives largely off oil and gas exports (at least the government does) the falls in prices of those exports is a disaster. Suddenly huge holes appear in budgets and so on. And what is needed is some manner of turning the economy around, to make it produce more of what was previously imported and which can no longer be afforded as export income collapses. Well, what achieves that? A fall in the value of the currency achieves exactly that. It makes imports more expensive, lowering the amount imported. It makes domestic production more profitable, thus boosting that. It also makes exports of other goods cheaper, thus boosting non-oil exports. This is exactly what the doctor ordered for that economy. So, it's great that it is happening.
The Bank of Russia won’t intervene in the currency market unless the ruble’s swings threaten the stability of the nation’s banking industry, Nabiullina said in an interview on Wednesday.
Quite right too. When the markets unadorned are doing exactly what is needed to offset that fall in the oil price why stop them?
Of course, this does have the unfortunate effect of making all Russians poorer. But then the fall in the oil price means that all Russians are poorer. Might as well simply accept this fact and get on with trying to improve things rather than denying recognition of reality.
