The floating exchange rate of the ruble is what does it mean? What threatens the floating exchange rate of the ruble?

The floating exchange rate of the ruble is a complete refusal of the state power of the Russian Federation from the process of regulating the national monetary unit relative to the currencies of other world states. The direction of movement of the exchange rate is formed exclusively on the basis of market laws of supply and demand. At the moment, only a few countries successfully practice this format of policy in relation to their monetary sign. A more widespread economic regime is the regulated exchange rate.

Specificity of the floating exchange rate of the ruble and fixed

The transition to a floating ruble rate implies stopping the use of a single currency corridor, within which the value of the national currency varies within a clearly defined framework. When the upper limit or lower limit is reached, the monetary authorities activate their forces, which are directed to stabilize the exchange rate. Intervention in most cases takes place in the format of interventions. On the open market, transactions of a conversion type with a national currency and reserve signs are actively implemented.

Until the floating exchange rate was adopted at the Bretton Woods Agreement as early as 1944, the fixed exchange rate system determined the obligations of the Central Banks, who independently established the exchange rate of their currency, to assume full responsibility to change foreign money in accordance with accepted quotations.

Disadvantages of a fixed course system

Floating exchange rates were legalized in 1944, after there were obvious shortcomings of the fixed rate. The main disadvantage is the rigid borders in the aspect of the development of the domestic economy of the state and the rigid framework for entering the world arena. The second obvious lack of policy is the bias of quotations in relation to each other. This has a direct relationship with the specifics of the individual development of each state. Thus, one country may experience strong economic difficulties, while the other will be characterized by strong and strong financial health. Such an imbalance will lead to the fact that the burgeoning country will face a number of problems in connection with the unfavorable situation in the territory of another state.

Disadvantages of Floating Rate

In turn, the system of floating rates, which completely excludes all the described disadvantages, is also characterized by a number of shortcomings. It should be said about the high volatility of the market, which many traders very quickly turned into an advantage and the basis of their earnings. Negative imposition of sharp fluctuations in exchange rates impose only on export-import operations of the international market.

Floating rate on the territory of Russia

For the first time, the regime of a regulated currency was initiated in Russia since 1999. The decision was made in connection with the default, which took place in 1998. After adverse events in the society, the government of the Russian Federation has got an opportunity to eliminate negative influences of the external economy on the national financial sector. Already in 2005, a concept was introduced, such as the bi-currency basket, which used the tandem of the dollar and the euro. It opened wide prospects for the regulation of the country's currency. After the ruble was tied to the world's two strongest monetary units, the focus on the economy of the United States was instantly weakened.

Until 2009, state authorities actively intervened in the currency market quotes only in the situation where the value of the monetary unit began to move actively towards the corridor border. After the global crisis in 2008, the rule was abolished. The government can actively intervene in the movement of quotations, regardless of whether they are within the corridor or outside its borders.

Excursion to the history

For the first time, Deputy Chairman of the Central Bank of the Russian Federation Ulyukayev spoke about the transition of Russia to the floating rate for the time in 2005. He proposed a transition to this type of policy in the period from 2010 to 2015. At that time, the rationality of the policy change was explained by the need to weaken the ruble due to a sharp increase in the volume of export earnings. The decision was pondered over in an entirely uncharacteristic economic situation for the present moment. This is the financial stability, and the high cost of oil, and the stability of the course, and a favorable balance of payments.

Why did not the program of the floating course justify itself?

The floating exchange rate of the ruble is a serious program for transforming the economy, which has been actively prepared since 2012. Its implementation was tentatively scheduled for early 2015. Due to the situation changed in comparison with 2005: the sanctions pressure, the drop in the value of "black gold", the recession in the economy, the effect of the government's actions was the opposite. The ruble weakened against the dollar and demonstrated unprecedented volatility. At that time, when the active policy of the Central Bank of Russia could correct the situation, he, on the contrary, decided on his self-elimination and actively adheres to his position. What does the floating exchange rate of the ruble mean for Russia is difficult to say, since the effect of its implementation has not been achieved.

Floating rate and economic instability

The floating ruble rate is a financial policy of the state, which is unacceptable to apply in an unstable economy. This is due to the fact that this pattern of government behavior only increases the risk of currency volatility. It is interesting that the advice of the best "world experts" who advise the government of the state today is very divergent. In particular, according to the representative of Investbank, the floating exchange rate regime is absolutely unacceptable in connection with the severe sanctions imposed on the state with a sufficiently large corporate external debt of the state. The financial expert makes a confident forecast regarding the instability of the state, both financial and price. Andrei Belousov, the assistant to the president, publicly declares that, despite the introduction of a floating exchange rate, the country is not yet ready for this. Fears are connected with the fact that volatility of a monetary unit can lead to complete destabilization of external trade transactions as a result of inability to fulfill obligations under previously concluded contracts.

The analogy is conducted since 1993, when in the middle of spring, due to the fall of the ruble, most of the country's large companies were forced to terminate long-term contracts, bearing very significant losses. As the world practice has shown, the floating exchange rate of the ruble is a monetary policy that can effectively show itself only in states where the economy is developing at an active pace, and the industry is in its prime. The main export item should belong to the production.

Floating rate in the countries of the world

The floating exchange rate regime is set at only 34% of the world's countries. The indicator includes 65 countries, of which 29 practice a floating exchange rate with interventions in rare cases, and 36 states practice forming the national currency rate based solely on the market formation of demand with supply. The absolute floating exchange rate of the national currency is a phenomenon that has been fully realized in 17 countries of the European Union. The remaining 13 countries differ 70% of the share of industry in exports. In the list of states that practice free floating of the national currency and specialize in oil production, only Mexico and Norway have got. The course is actively practiced and strategic partners of Russia. This is Turkey, Brazil and India. These states have very soft currency interventions by the Central Bank. The floating ruble rate, the consequences of which have already begun to be actively manifested, is not effective, since Russia does not have a developed market for currency risk insurance. Oil exporting countries with one specialization have other exchange rates, mostly stable and fixed.

Positions "For"

Considering the question of what the floating ruble rate for Russia means, it is worth saying that the situation simply does not stand up to criticism. The Central Bank does not fulfill its obligations as determined by the law, as a result of quotes, a significant distance passes daily. Plus for the financial structure is that it does not have to spend its gold reserves on the game with speculators. Past the fact that speculators are feeling great even in the face of strong volatility is missing. The place of the most influential player of the market in the person of the Central Bank has already been occupied by large experts with foreign exchange earnings, which own 72% of the cash flow. What threatens the floating exchange rate of the ruble for the country and its population in the future is very difficult to say, because everything depends more on the actions or inaction of the Central Bank.

Erroneous ideas

The fact that the floating exchange rate of the ruble means and how useful it is for Russia is told in higher education institutions, despite the fact that all the information provided is erroneous. In one of the textbooks on economics, the following data are provided: "A floating exchange rate in the conditions of a deficit in the country's balance of payments will be compared with a deficit, which will unquestionably lead to a reduction in the inflow of dollars into the territory of the state. The value of the national currency will be systematically lowered, as a result - a reduction in the value of domestic goods, their popularization in the domestic market and an increase in exports. Further, the growth of exports will strengthen the influx of dollars, and the demand for foreign currency will fall, the ruble rate will rise. " To some extent, this is correct, but considering this issue, it should be taken into account that the rule is relevant for states that supply goods whose cost price is formed solely from the costs of the domestic market. To explain what the floating ruble exchange rate threatens, it will be easier if you consider that 72% of state exports consist of oil and gas, and the cost of energy carriers is formed exclusively on the international market. As a result, "free floating of the ruble" can not lead to an increase in the exchange rate of the national currency, or to an increase in exports. To direct the advantages of this monetary policy to its side, Russia had to diversify exports by commodity nomenclature, and not through partner countries, which is now actively being done under the pretext of diversification.

What to expect in the future?

The floating exchange rate of the ruble, whose consequences are still unknown, opens the way for the Central Bank to intervene. At the same time, the IMF standards clearly state that the Central Bank has the right to intervene no more than 3 times within 6 months, and their duration should not exceed 3 days. Strict regulation of the stability of the national currency will be kept in the smallest amount.

The Central Bank of Russia actively applies changes in the interest rate to regulate the money supply. Strengthening of the currency is carried out by reducing its number, which leads to the formation of high liquidity risks and impedes the economic growth of the state. Loans are growing, becoming an inaccessible source of investment for economic sectors. Considering the question of what the floating exchange rate of the ruble means, it is safe to say that the phenomenon, in fact, as well as the depreciation of the exchange rate itself, is the consequences of the policy of the Central Bank. The consequences are currency jumps in the market and aggressive speculative sentiments.