Interviews, INVESTMENT CLIMATE

Russians have fewer reasons to watch dollar and euro exchange rates – Agvan Mikaelyan

A survey conducted by SuperJob shows that 23% of Russians follow the dollar exchange rate fluctuations, and 21% continue to watch the euro closely. It appears that respondents’ interest in foreign currency declines with their income, and conversely, the more a person makes, the more attention they pay to forex fluctuations. Invest Foresight asked Agvan Mikaelyan, a board member of FinExpertiza audit and consulting firm, whether Russians still have reasons to keep track of the dollar or euro’s worth in rubles.

Agvan Mikaelyan, Member of the Board of Directors of FinExpertiza audit and consulting network. Sergey Subbotin / RIA Novosti

— So, Russians seem to be losing interest in exchange rates. Are there cases where they still make a difference?

— Well, of course, some people have very reasonable interest in what’s happening with the dollar and the euro. Let’s roughly divide Russians into two categories. There are people who vacation abroad. They travel to non-CIS countries, as we said before; now these are ‘unfriendly countries,’ but it’s just the same. It is quite obvious that, since Russian credit cards are no longer accepted there, our tourists need to bring cash.

Even though the number of such tourists has predictably plummeted, about one million Russians still occasionally go abroad. They definitely need to monitor the exchange rates.

— What about the other category?

— The other category is interested in the ruble’s exchange rate against the dollar and the euro for business reasons. If they are engaged in exports or imports, then naturally, their business depends on the ruble’s value against major currencies. Moreover, today, even if you buy goods from China, you still need to look at the dollar, euro and ruble rates.

— Then why is overall interest in exchange rate fluctuations declining?

— This one is easy: the share of mutual payments in foreign currency has contracted significantly, and the number of Russians who buy currency to travel abroad has dropped as well. On top of that, foreign currency no longer plays a major role as a savings instrument. Banks have little use for dollars and euros, so they offer negligible interest. It is only natural that people are losing interest in foreign exchange trends.

There is one more group, albeit a small one – Russians who were educated abroad, and their children went to foreign schools – the situation is frozen for them now to say the least.

We are now used to the national currency’s rate at about 90 rubles per dollar or euro. Should we expect it to slide to 100 against the dollar, and beyond? What does it depend on?

— The truth is that foreign exchange is a rather complex macroeconomic game. Let’s start with who benefits from the weakening of the ruble and when. It may be good for the government when it is time to meet its ruble liabilities, and converting its forex revenues is an option. Previously, Russia had a huge forex earnings surplus combined with ruble liabilities, so the ruble always weakened by the end of the year, just before local liabilities were to be met.

Now this factor has been largely leveled. But a very weak ruble seriously reduces our chances of importing goods. So, we can hardly assert that a weak ruble is good. Well, it is good for providing a certain level of incentives for import substitution, but on the other hand, this pushes up the cost of goods and services.

— Why is that?

— Because with no external competition, business becomes absolutely rational, and domestic prices go up. We have seen this so many times before that no more proof is needed. And in view of this, the government always prefers the national currency to hover within some predictable corridor. In most cases, if there are no serious external shocks, this corridor can always be maintained.

Does this mean forecasting is easy now?

— My advice is – look at the projections that are included in our federal budget. On average, the real exchange rate for the year will be around the projected one.

But, of course, external factors need to be taken into account as well. These include sanctions, battlefield developments, and other non-economic aspects that can play a role.

— Since you mentioned the corridor, why isn’t it possible to make the exchange rate stable? What are the risks?

— It is completely unhelpful. Let’s conduct a mental experiment. Say, an external shock happens like what happened two years ago – and the ruble’s objective exchange rate to dollar and euro soars up. Who will compensate for the difference between this new rate and the earlier set rate and using what funds?

The state will have to take funds from the federal budget. So, a hard-set rate, even if it’s a corridor, poses great risks.

Also, let’s not forget that all doctrinal documents state that Russia is a state with a market economy. Regulating the exchange rate goes counter to the market economy.

Although there has been a lot of criticism of the market, it still plays an important and helpful role.

— Can you elaborate? 

— The market is part of self-regulation. No, market self-regulation can’t improve the situation when the economy is in serious shock, and you are experiencing high pressure or when somebody is imposing non-market mechanisms.

For example, sanctions are not a market mechanism and there can’t be sanctions in a perfect market. You must be able to protect yourself from this, and this protection takes a lot of composure and consideration.

We simply take the exchange rate and do whatever we please with it. We go to the exchange, buy and sell the amount of dollars we want because our foreign currency market is not really that big.

— And still, in a market economy, the ruble to dollar/euro exchange rate generally remains within a predictable corridor. 

— Certainly, and it has been proved many times before. Our economy has not experienced global structural shifts yet; it is moving very slowly. These changes can’t be fast and happen overnight. It is a dream of poorly educated people.

We should be realistic. The reality is, there can’t be drastic sweeping changes.

— And it is a good thing, correct? 

— We already have a budget surplus. We export more than we import, despite anything, all this in the middle of a special military operation. Very few can handle it the way we can. I personally believe that this situation is a unique phenomenon that deserves more research. I don’t recall any other cases when a country conducting a military operation was able to improve its macroeconomic indicators simultaneously. 

You see, I have criticized the fact that we keep money in a war chest many times. I used to say that the right tactic would be to invest it in the economy. If we are preparing for trouble, then yes, we should be saving.

It turned out this scenario was an actual prospect and the state was ready for it. So now, I can’t even bring myself to criticize our financial authorities.

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