Wednesday, June 20, 2012

Why A Weak Ruble Weighs On The Entire Russian Economy Analysis: The depreciation of the Russian ruble hurts the whole country, especially the poorer masses who don't deal in dollars. And no, you can't just blame it on foreigners.


Analysis: The depreciation of the Russian ruble hurts the whole country, especially the poorer masses who don't deal in dollars. And no, you can't just blame it on foreigners.


MOSCOW - We are being told not to storm the currency exchange bureaus, where people are already starting to fight over dollars. Meanwhile, experts are recommending that people divide their savings between rubles, dollars and gold.

That is all good advice, especially since most Russians don’t have millions of dollars of savings, but maybe a few thousand. Salaries are paid in rubles, and that is what most of us use to pay for food, clothing and rent. For Russians, the standard of living depends primarily on the stability of jobs, salaries and prices, not on the growth of nest eggs.

But regardless, a weak ruble is a threat to all of those things, especially if you look not only at the past month, when the Russian currency dropped by 11 percent compared to the dollar, but also at the whole past year. The value dropped from 27.5 to 33.5 rubles per dollar over the course of last year, a 21 percent drop. That enormous plunge is a hidden devaluation. Slowly but surely products like Dutch butter, Australian beef, writing paper, pencils and mobile phones are getting more expensive.

Let’s say that the government will keep rent prices down for low-cost shared housing, known as "communal" apartments. Faucets, light bulbs and pipes are made domestically, but the trucks that transport those supplies are certainly imported. And if the expenses for communal apartments go up, then either you have to subsidize the housing with the government budget (which means making cuts elsewhere) or you have to stop doing all renovations, and maybe cut off hot water.

But even that isn’t the most important effect. It’s impossible to predict what the drop in the ruble’s value will mean for the broader Russian economy, just as it’s impossible to understand the reasons for the devaluation.

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