Central Bank of Russia tries to destroy Russian economy?
The Western community has been putting a
lot of pressure on Russia lately. At this time of history, Russia needs
to take efforts to support the real sector of economy. It is the
Central Bank that should play the key role at this point. However, as
economists note, it is the Central Bank that shows extremely negative influence on the Russian economy, accelerating inflation and weakening the ruble ...
What has the Central Bank been doing to the Russian ruble
lately? It would seem that the CB has been supporting the national
currency, although there is nothing positive about it. Chaotic currency
interventions could only trigger speculations on currency exchange
rates. At the same time, the Central Bank has spent billions of dollars
to support the rate of the Russian ruble. To be more precise, Russia's
gold and currency reserves have lost $100 billion in 2014, with the
greatest losses taking place in October, when $27 billion was spent to
support the ruble. The result of that is zero. The ruble is still
rolling down the hill.
At the Moscow Economic Forum, held in Moscow on Tuesday, State Duma
deputy Oksana Dmitrieva said that the strengthening of the Russian
currency, which we could see during the year, was demonstrative. The
ruble was not strengthening, and the attempts of the Central Bank to
keep the exchange rate led to further devaluation of the Russian
currency. Earlier, some experts predicted that the ruble would be traded
on the level of 60 rubles per one dollar by the spring of 2015. It is
now obvious that this is going to happen even before the new year. To
crown it all, foreign exchange interventions provided for the increase
of the ruble volume in economy, which boosted the inflation rate.
"The Central Bank intervenes often in a
chaotic way, trying to keep up the rate of the currency at the time when
there is no opportunity to keep it up at all. At times, the CB conducts
the demonstration of the strengthening of the ruble, as it was in
March-April 2014. If we look for opportunities for currency speculation,
then we can find it where certain players have access to insider
information, - says Oksana Dmitrieva. - It should be clearly understood
that attempts to strengthen the ruble and spend gold and currency
reserves on these efforts, as was the case in 1998 and then in 2008, may
lead to the collapse of the ruble value."
According to Oksana Dmitrieva, small
percentages of industrial growth that Russia has seen in recent months
is the effect of the devaluation of the ruble.
Indeed, the biggest problem lies in the
fact that the Central Bank shows no reaction to the new course of
economic development of the country, which President Vladimir Putin and Prime Minister Dmitry Medvedev
have announced before - the policy of industrialization and the
development of the real sector. However, the refinancing rate of the
Central Ban, still remains extremely high, and the reasons are
understandable, because the high rate serves the main mechanism to
contain inflation. With all these manipulations, the real sector of
economy, which, in the context of growing financial and energy isolation
of Russia, can improve economic performance, remains bound hand and
foot.
Chairman of the National Union of Milk
Producers, Andrei Danilenko, said that the Central Bank should revise
its approach to priority industries in terms of import substitution. The
rates for agriculture and industry should be reduced. One could
probably go even further and proceed to interest-free loans, taking into
consideration the fact that an adequate draft law has already been
prepared and submitted to the government.
Yet, there are other mechanisms. IMF Japan
Executive Director (2007-2010) Daisuke Kotegawa told of Japan's
experience in dealing with postwar hyperinflation. Noteworthy, despite
the current decline of the Japanese economy, a little more than 50 years
ago, the country of the Rising Sun made a huge industrial breakthrough,
which was called the great economic miracle. In a nutshell, the
Japanese central bank strictly limited sectors for financing.
Thus, it was industry that received the
inflow of funding. The industrial boom and the high-tech status of the
production sector of Japan appeared as a result of the course targeting
the development of production in lending, when loans to other sectors
were purposefully limited. Why can't Russia do the same today?
It appears that the fear of the Central
Bank administration is the only obstacle on the way to the great future
of the Russian industry. It appears that the Central Bank of Russia
fears losing money on the foreign exchange market. There is such a risk
indeed, if nothing is done to adjust the volume of cash flows, to create
an attractive environment for investment in the real sector, but make
it inaccessible and uneconomic with the help of high rates.
Well-known journalist and political
adviser Anatoly Wasserman believes that one should not blame only the
Central Bank for the fall of the economic growth.
"The whole economic block of the Russian
government, including the Central Bank, is guided by one and the same
block of economic theory that stems from one and the same concept,
namely, libertarianism - the movement about benefits of unlimited
economic freedom of individuals, disregarding society. It is clear that
this complex of theory is destructive for the society, and it does not
make sense to blame the Central Bank, turning a blind eye on other
factors that destroy our economy.
"The concepts that the Central Bank
officially declares are strange to a certain extent. Firstly, the
Central Bank says that one should limit inflation by raising the
refinancing rate. However, as I understand it, raising the refinancing
rate means that anyone, who raises a loan in a bank for industrial
trade, should set the final price of their product to be able to
compensate the lending rate. That is, a high lending rate does not cut,
but rather raises prices.
"Secondly, the Central Bank is guided by
the politics of full redundancy. In principle, this means that foreign
exchange reserves of the Central Bank shall at any time be sufficient to
pay off all debts of the Russian Federation.
However, when an urgent need appeared to repay the loan debt, simply
because we have stopped receiving new loans, the Central Bank is sitting
on its reserves, like a dog in the manger, offering those that owe
something to the West to obtain their own currency. Technically, though,
the Central Bank can redeem all foreign debts, take the debts of
economic entities and repay them with the money that they had borrowed
in the West and sold to the CB for rubles."
According to Anatoly Wasserman, actions
of the Central Bank indicate that its management strictly follows the
theory developed by developed countries for developing countries, so
that the latter do not become developed ones. Thus, the cure is to
change the economic theory for the entire economic bloc of the
government. If someone in this economic block does not consider it
possible to proceed to another theory, it means they will have to go.
Maria Snytkova
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