Translated by Ollie Richardson for Fort Russ
8th February, 2016
Renown economist and Advisor to the President of Russia, Sergey Glazyev, spoke about who produced the speculative attack on the Russian national currency and how to deal with it.
According to Sergey Glazyev, the modern banking system of Russia is not fulfilling the role of "the circulatory system of the economy". He explained the need to make the Central Bank of the Russian Federation stop "the orgy of currency".
How Speculation worked
Sergei Glazyev noted that the collapse of the exchange rate of the ruble occurred as if it was on orders from the IMF, followed by the state borrowers.
"Manipulators made sham transactions between themselves, customized the ruble to a minimum, causing panic in the market, fixing their profits, then selling the currency at this rate and leave the market. After that, the ruble rose naturally, and speculators waited for the next occasion, and again, they got the signal and started again. Each such jump produced $2-3 billion for the pocket," said the economist.
The government and the Central Bank of the country must cease trading in situations of high volatility, and lower leverage, that is, only conduct transactions that are secured with real money.
It would be better if the trade balance was negative
Glazyev is sure that there are no problems on the way to the return of sovereignty of the Russian Federation in the financial sector: "there would be a political will". He noted that a positive balance of trading following the results of 2016 "is not the most important thing".
"Given its structure, it would be better if it was negative. If we acquire high-tech equipment instead of importing potatoes, tomatoes and apples, we can even go into a minus. But the production will stimulate development. But while everything is happening, it will be exactly the opposite. Incidentally, Americans are constantly in a negative balance, as they not only generate, but also buy the latest technology around the world."
To fight or not to fight inflation — that is the question
"Frankly, I'm tired of hearing the "mournful song" of liberal politicians on the need to combat inflation. It is well known that in Russia, it has a completely different nature. The higher prices of imported products, of course, could play into the hands of domestic manufacturers. But only if the latter has access to long and cheap money, which the Russian financial system is cut off from as a result of the imposition of sanctions by the West," says Glazyev.
He explained the essence of such concepts as "cost-push inflation":
"Russian commercial and state banks receive refinancing from the Central Bank. If the key rate is high, the costs are budgeted for in the cost of the final product. Plus, be aware that a 11% margin is added for commercial banks. As a result, the price of Russian products is quiet nearly higher than foreign's ones (and this in the presence of an expensive dollar).
Why banks do not reduce interest rates on loans
The assets of the Russian banking system amount to about 75 trillion, says Glazyev, of which 22 trillion rubles falls on deposits. These banks could lend money, not focusing on the refinancing rate of the Central Bank.
"If the bankers lend to their citizens under 6%, you can give to industrialists under 8-10%, instead of 24% per annum. If this system works, and the authorities do not specifically disperse inflation or unreasonably increase tariffs for services of natural monopolies, then no increases in price will happen. I'm not talking about state banks, which in addition to commercial, should serve a social function. One gets the impression that this is not without complicity. It is clear that it is more profitable not to give money at 8-10%, and to play in the foreign exchange, earning on, in particular, the fall of the ruble. This "Gordian knot" should be cut by the government "with an ax".
The idea of freezing the exchange rate of the ruble
"This proposal should not be taken literally. The Central Bank just needs to go back to the market to prevent speculative attacks on the ruble. But to completely exclude this possibility, you need to "nationalize" the ruble, tying the price not to the dollar or the Euro, but to the gold equivalent. Of course, the price of gold changes too, but it's not as volatile as trading unsecured "paper" on the stock market. Another thing is they will try to export the fixed exchange rate of the ruble abroad. And here, again, there is scope for legislation, in the sense that any barriers to "capital flight" can be established", — said Glazyev.
"Operating" on the economy will not be painless
"I believe that we need to nationalize a significant portion of the industries, and expropriate the largest state properties acquired in an unfair (illegal) way. Less drastic measures will do nothing, as the state simply will not have the resources to launch an anti-crisis policy. You cannot radically change the movement of social development without hurting anyone".
Glazyev added that banks are trying to compensate for lost income, leaving the currency market.
"The ruble is unstable, not for the reason that the Central Bank has ceased to carry out foreign exchange intervention (they are at risk for a couple of years to lose all the gold reserves), but because the price of oil plummeted".