Speculative foreign capital benefits from the falling ruble

By Vestnik Kavkaza

The USA could soften sanctions against Russia to help the European economy, the US Secretary of the Treasury Jack Lew states. Meanwhile, the Minister of Economy and Finance of Italy, Carlo Padoan, thinks that the sanctions negatively influence not only the Russian economy; he suggests returning to previous mutually beneficial economic relations “which are good for Russia, for Europe, and for the whole world.”

At the same time, the Russian economy is influenced not only by Western sanctions. According to Sergei Glazyev, a Russian economist and politician, an advisor to the President on regional economic integration, “there were no scientific grounds for combining the shift to targeting inflation with letting the ruble float freely. When our economy is quite open, the shift to targeting inflation should be combined with control over the ruble exchange rate, as any fluctuations of the ruble rate automatically damage the consumer market, i.e. inflation which is declared to be a target.”

Glazyev thinks that “the strategic mistake” was made “under pressure of doctrinairism, under pressure of the IMF recommendations, which had many times stated that targeting inflation demanded a shift toward a free-floating ruble. It is a false thesis. Following it led to the opposite effect. Declaring targeting inflation, setting a goal of 4% inflation, the Central Bank achieved the opposite goals: inflation has doubled.”

The economist thinks that Russia has appeared in the zone of an economic slump due to another mistake by the Central Bank, i.e. the increase of the key interest: “Numerous surveys – Russian and foreign – and the historic experience of 50 years prove that there is no statistically important dependence between the dynamics of monetary stock and the level of inflation. When our CB provides such a primitive and outdated policy which has been disproved by thousands of studies, relying on doctrinairism, dogmatics, we simply threaten our partners with inappropriate macroeconomic policy. It has been proved many times that a reduction of monetary stock, an increase in the key interest rate, provoke an economic crisis. Such activities by economic authorities always lead to a reduction in industrial production, a banking crisis, and a decrease in business activity.”

Glazyev calls the traditional recommendations by the IMF, according to which the CB is acting, “a vulgar interpretation of the neoclassical economic idea, which has nothing in common with reality, but is very beneficial for speculative foreign capital, which earns a lot due to the falling ruble.”

The CB, which declared free floating, made another mistake, according to the economist: it distanced itself from the market and left the market to the exchange board, which was privatized earlier. “People who studied in international financial structures are working in the exchange board; it's no surprise that the main benefit from the falling ruble was gained by foreign major banks, which easily assessed how our monetary authorities would act and who worked in the exchange board,” Glazyev is sure.