Ruble to spread in global market

Ruble to spread in global market

Russia is facing many economic problems and has seen its currency, the ruble, drop to record-low levels. Nevertheless, policy makers in Russia and abroad may help to strengthen the Ruble’s position in currency markets, with interesting ramifications.

International political economists have often debated the role of the U.S. dollar as the global reserve currency, especially in more recent times, as the U.S. does not appear to be the undeniable economic hegemon it once was. Years of quantitative easing, worrisome debt and relative decline have opened up avenues for alternatives to the U.S. dollar, and whether this provides stability in the long run is a hot topic.

In light of this, policies surrounding the Russian ruble both in Russia and abroad should not go unnoticed. While generally not considered a particularly international currency, those who seek to diversify their currency trading or invest in Russia may see some opportunities in the near future.

Last month, the ruble continued its current volatile course and dropped to the lowest levels against the Russian Central Bank’s (CRB) dollar-euro basket since 2009. The drop was sparked by positive surprises in U.S. jobless claims and consumer sentiment forecasts, as well as dubious commitments to quantitative easing. At the same time, Russians’ demand for dollars and euros has picked up to help pay off debts and fund private consumerism before the holidays.

Meanwhile, Russia’s crude oil exports have also dropped as the U.S. becomes stronger in the energy market, and as such Russia’s stock market also took a slump late in November. In the background, Russian inflation continues to cause headaches.

This uncomfortable situation has helped spark innovation in Russia’s capital account policies. The ruble does not float freely but is fixed to a floating corridor based on the euro and dollar. But earlier in December, the CRB decided to expand the trading band on the ruble and has hinted at setting the currency completely free at some point. The decision is justified as focusing on inflation threats rather than the exchange rate and will make trading in the ruble less restricted.

At the same time, a former Moscow mayor candidate and current legislator, Mikhail Degtyarev, has proposed radical changes to curb the increasing demand for U.S. dollars. If his proposal goes through, holding U.S. dollars will be severely limited, with rubles taking their place. Degtyarev claims his proposal seeks to alleviate dependence on the U.S. dollar, which he compares to a ‘Ponzi scheme’ destined to expire in 2017.

In the meantime, China has excitedly opened up their mainland market to foreign currency for the first time, allowing the Northern city of Suifenhe to trade in rubles on equal level with the renminbi. As China is also taking steps to spread its own currency, we can expect rising levels of trade between rubles and renminbi, making them more attractive to international markets as well. Interestingly, Moscow, as a growing financial center, can be expected to be a key trader in renminbi down the line.

With these policies combined, the ruble is set to become more widely available to global currency markets, adding more diversity to currency trading. However, it is unlikely for the ruble to float completely freely anytime soon, and Degtyarev’s bill to curb the dollar is far from becoming law. It has yet to go through several rounds of approval, and a similar proposal was shut down in 2003.

More fundamentally, if Russia’s economic woes do not change course, it is difficult to be very bullish on the ruble. However, a weak ruble will be good for exports, and Russia will eventually benefit from recovering European markets as well. As such, the new symbol for the ruble, revealed on December 11th, is scheduled to become a recognized character for Russia’s trading partners around the world.

Categories: Finance, International

About Author

Karl Sorri

Karl has gained global experience working at the Transparency International Secretariat in Berlin, the Political/Economic Section of the U.S. Embassy in Helsinki, and as a freelance journalist. Karl holds an MA in Politics from the University of Glasgow and an MSc in International Relations from the London School of Economics.