Is there financial stability in Russia: the thesis of the Central Bank raised doubts

The ruble is weakening steadily and non-stop

The Bank of Russia sees no risks to financial stability amid the weakening of the ruble, said Deputy Chairman of the Central Bank Alexei Zabotkin. At the same time, the official explained that the dynamics of the exchange rate of the national currency is determined by the flows of the balance of payments, by the fact that “in recent months, prices for the main goods of Russian exports have been going down.” Both theses are at least debatable. For some reason, the lines from The Twelve Chairs come to mind: “There were so many hairdressing salons and funeral processions in the county town N that it seemed that residents were born only to shave, cut their hair, freshen their heads with a vezhetal and immediately die. But in fact, in the county town N, people were born, shaved and died quite rarely.

In other words, the real picture does not fully correspond to either official statistics or official statements. Yes, we definitely have financial stability – in the existential sense that the ruble is weakening steadily and non-stop: at the auction on Friday, August 11, the rate exceeded 99 per dollar for the first time since March 2022, and over the past three months it has fallen by 20%, entering the top three “worst emerging market currencies” (Bloomberg’s wording) along with the Turkish lira and the Argentine peso.

Yes, in contrast to the situation in the spring of last year, the financial economy is not in danger of imbalance: then, against the background of the dollar exchange rate of 120, there were risks of a complete cessation of investment activity, the collapse of the banking system due to a massive influx of depositors. Today there is nothing like it and close. Moreover, a strict restriction of the Central Bank continues to apply to individuals, providing for the withdrawal of up to $10,000 in cash (the rest is in rubles at the exchange rate).

The point here is different: the state of the national currency depends on the state of not only the financial sector, but also the economy as a whole, on a great many interconnected processes taking place in its depths. It’s like in the human body, where all systems – musculoskeletal, digestive, respiratory, cardiovascular, endocrine, nervous, immune – do not function in isolation, but as a whole. And when one of these structural components fails, the others suffer. Meanwhile, one gets the impression that in Russia each department taken separately does not calculate the degree of influence of its steps on other sectors of the economy.

For example, the monetary authorities of the Russian Federation are concerned exclusively with “class related” problems of capital movement, the exchange rate, inflation, the key rate, the budget deficit, partly the balance of trade, and so on. The ruble weakening trend has a complex nature. First, it is often fueled by narrow departmental measures: for example, the progressive tightening of monetary policy by the Central Bank undermines investment activity, as loans become unavailable to enterprises, which increase their costs, which are eventually shifted into prices. Secondly, the deep economy has been and remains inefficient and uncompetitive, and the current indicators of its success are mainly related to the products of the military-industrial complex. Yes, GDP and value added are growing (by 4.9% in the second quarter), but this is, in fact, fictitious growth: in the context of the restructuring of the economy on a war footing, it absolutely does not reflect the standard of living of the population and the situation with real incomes.

Thirdly, the weakening of the ruble leads to an increase in the cost of imports. And imported goods are not only smartphones and irons, tomatoes and cheeses. These are equipment and technologies for industry, these are machine tools and spare parts. Their ever-lower availability seriously hinders the development of the economy. And if the economy is hurt in some way, it means that by definition it faces risks. And along with it, the financial sector (the area of ​​responsibility of the Central Bank and the Ministry of Finance).

That is, cause-and-effect relationships work. Take, for example, the recent statement of the head of the National Association of Builders (NOSTROY) Anton Glushkov. According to him, the weakening of the ruble rather quickly leads to a decrease in the attractiveness of the Russian market (which is highly dependent on external factors) for migrant construction workers. “In the past two years, Tajikistan, Uzbekistan and Kyrgyzstan, the main suppliers of labor resources in the Russian Federation, began to focus on other markets. The Middle East has become a competitor, there is also a large number of construction projects going on there,” Glushkov explained.

As for the thesis of the Central Bank, according to which the dynamics of the exchange rate of the national currency is determined by the flows of the balance of payments, these indicators are just improving. In six months of 2023, the current account surplus decreased by 7.2 times, and in seven months by 6.6 times. Plus, discounts for Russian oil Urals are reduced in relation to the benchmark Brent. Accordingly, any black-and-white assessment of the situation with the ruble and the notorious financial stability is a priori subjective and groundless.