Last week, Alexey Vedev, Head of the Financial Studies Department at the Gaidar Institute, took part in the conference “New Architecture of the Monetary and Financial Market and the Prospects for Using the Ruble in International Settlements”, which was timed to coincide with the Day of the Russian Rubl. Finversia published the gist of his presentation.
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The forex market development trend is the key theme of the new reality. Alexey Vedev's opening address was focused on the specificities and development trends of Russia’s forex market against the backdrop of global financial imbalances.
“In the year of the 30th anniversary of the Russian ruble, we move forward into the past. Now we are at the level of 32 years ago, when we had a closed economy and multiple ruble exchange rates. Essentially, the national currency’s exchange rate is a strong macroeconomic indicator only in an open economy,” pointed out Alexey Vedev.
According to the expert, the main goals of the government monetary policy are to optimize Russia’s foreign economic activity, regulate capital flows, ensure financial sustainability, and promote competitiveness in domestic industry. So far, these goals have been achieved only to a certain extent.
Alexey Vedev paid special attention to the pros and cons of the policies of a strong and weak ruble.
“The policy of a “weak” ruble hovering around RUB 70-80 per US dollar has both some positive and negative aspects. The positive ones have to do with the increased incomes of exporters and export stimulation, export restraint, declining labor costs, and increasing gold and foreign exchange reserves held by the RF Central Bank. The negative ones provoke inflation, push down effective demand, push up the price of investment imports, trigger capital outflows, and increase the cost of servicing the country's external debt,” the expert believes.
He noted inflation containment, growth in imports of investment goods and domestic production, a reduction in consumption cost, and a lower level of “dollarization” of the economy among the positive factors of the policy of a “strong” ruble. However,  that policy also has its downsides. These are rising imports, decreasing competitiveness of Russian producers, an overheated financial market, and a growing private external debt.
By way of rounding up, Alexey Vedev noted that since 2014, after the government approved a large-scale import substitution program, the dependence of Russian industry on imports has been steadily on the rise. The question of whether the exchange rate of RUB 52 per US dollar is fair has remained open in view of the existing multiple constraints, as well as the lack of a clear understanding of the optimal exchange rate of the national currency that would be most useful for the Russian economy.