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What can you people say about the reasons why rouble is collapsing? Which one is the main?

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Hi Danil. Welcome on Economics.SE. To down-voters : please justify your down votes in the comments, chiefly when the question comes from a new user. Even better, discuss why you think the question is a poor one on the meta, e.g. meta.economics.stackexchange.com/questions/152/… –  Martin Van der Linden Dec 3 at 16:38
I'm sure nobody really knows the answer to this question, but it'd be nice to see what arguments (1) have already been made (maybe in the media, if not in academia) and (2) what arguments can be made here. Maybe someone could look up the textbook reasons why any currency can lose value and then argue which of those potential channels seems consistent with what we have observed. Of course, it would always be nice is someone could produce a reference to a quality journal article---something we can trust more than your average EC.SE member. But, I think some good speculation could be had here. –  jmbejara Dec 6 at 20:07

2 Answers 2

up vote 4 down vote accepted

The answer is very clear when you look at Russia's monetary statistics. The Central Bank of the Russian Federation has a very good site, and you can see them here:

Russian Money Supply (M2)

or courtesy of the St. Louis Federal Reserve:

Russian money Supply

They provide the annual expansion rate which is nice. Historically, Russia's money supply has always been an extreme outlier compared to other European countries. Compared to the USA's money supply, which roughly doubles every 10 years, Germany which was down at 1.3x/decade last time I checked, Russia's typically increases by 20x a decade.

The open research question is why currencies tend to collapse suddenly, rather than over time, but the underlying reason is always found in their relative expansion rates. I would suspect that this particular episode has also been triggered by the recent drop in oil prices, since that will put additional pressure on oil exporters like Russia, due to the drop in income from exports.

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The primary source of the recent ruble collapse has almost certainly been the falling international oil price, aggravated by some other features of Russian politics and its economy.

Petroleum products account for over half of Russia's export revenue, and most remaining export revenue comes from other commodities, whose output it cannot easily adjust. When oil prices fall, this lost export revenue must be replaced by some combination of

(1) more (presumably non-oil) exports

(2) fewer imports

(3) a larger net capital inflow.

For the most part, these adjustments will be made in response to an equilbrating decline in Russia's exchange rate. Since Russia's export mix is so commodity-heavy, the short run response of (1) to the exchange rate is very weak; since consumers tend to be sluggish in responding to price changes, (2) is weak in the short run as well. For a modern economy with good access to international capital markets, (3) is the main short-term buffer for shocks like these, but Russia is currently suffering from Western sanctions and was not particularly well-integrated into international capital markets in the first place.

For all these reasons, a very large decline in the exchange rate is needed to induce enough of (1), (2), and (3) to offset the decline in oil export revenue. Meanwhile, skittishness about the political situation in Russia (and its dubious historical record on monetary stability) don't help.

By the way, the dependence of commodity exporters' exchange rates on commodity prices is a staple of international finance; it has even been used to forecast commodity prices.

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good answer too :) –  Danil Gholtsman Dec 11 at 6:56

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