Focus should be shifted to the development of Russia's domestic economy

Yesterday, the exchange rate of the USD surpassed 79 rubles in trading on the Moscow currency exchange; the euro surpassed 86 rubles. Since the beginning of 2016 the exchange rate of the ruble against the dollar has decreased by 7%. The drastic fall in oil prices due to expectations of the restoration of Iranian oil exports has turned the ruble into one of the most quickly devaluated currencies of the countries with developing economies, Bloomberg thinks.

At the same time, Mikhail Belyaev, a financial analyst, reminds that any currency is a reflection of the state of affairs in its economy. The expert concludes that the Russian economic model has exhausted itself: “We can probably state even more harshly that it has never given us anything special, unless we are talking about the earliest years, when we were engaged in privatization, it was simply a transition to a new model of such market conditions. Then, it was not working for the benefit of the domestic economy. Here the monetary authorities are most to blame. The Central Bank has set a completely false aim of suppressing inflation by strangling our own economy, rather than economic stimulation and economic development. First you deal with the economy, then you have inflation, and not vice versa. There are moments when at first you suppress inflation, and then deal with the economy. But it is in those cases where inflation has already passed some improper limits. In other words, goes far beyond the framework of galloping inflation. Then, indeed, it is suppressed by emergency measures, and then they start to deal with the economy.”

According to the expert, “we can continue to depreciate the ruble if we want to fill the budget in such extreme situations, but we have to understand another point, that while budget money is deployed in such a way, this money, in its economic content, is indistinguishable from additional inflation.”

“I’m not for additional inflation, I just want to emphasize that when the Central Bank is in a position in which under no circumstances we can allow additional issuance, but we can get money by such additional artificial devaluation of the currency, then, basically, the right hand does not know what the left is doing there,” Belyaev thinks.

He is sure that, first of all, we must deal with the domestic economy: “The external economic sphere should work, but the focus must be shifted to the domestic economy and on the development of the domestic economy. External economic relations are very important; they are a very respected and very necessary thing, especially for our country, inscribed into the international context, but the focus should be transferred to the development of the domestic economy. And when the domestic economy will have normal demand, normal supply, normal production, normal wages, then it will be easier to resolve this issue, and perhaps not just easier, but the issues of stability of the exchange rate, of inflation and all other monetary factors and parameters will be solved simply."