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Who will save Russian ruble?

17 December 2014 11:19 (UTC+04:00)
Who will save Russian ruble?

By Ilaha Mammadli

The instability of the Russian ruble has its impact on the foreign exchange market of the many CIS countries, including Azerbaijan. Though the ruble is not a reserve currency for Azerbaijan, but it holds the third place in the country on the popularity due to migration processes between the two countries. Azerbaijan ranked fourth after Ukraine, Uzbekistan and Tajikistan on the number of migrant workers in Russia, according to the Federal Labor and Employment Service of Russia.

Today the ruble rose for the first time after a long collapse, but this joy was short-lived for the Russians. Initially, the ruble regained a strong fall of the previous day after the decision of the Central Bank to increase the key rate from 10.5 to 17 percent from December 16, which was made in order to limit devaluation and inflation risks, which significantly increased recently.

However, during the day on the results of trading on the Moscow stock exchange, the rate of the euro exceeded 100 rubles, and the rate of the dollar reached 80 rubles.

This suggests that the main objective of the Central Bank of Russia, which is to slow the fall of the ruble, has not been reached, and therefore the chances for the development of the Russian economy are minimized.

That’s because no one can determine the time frames for the adaptation of the economy to new conditions. Besides, the West is not going to lift sanctions, and that means that Russian banks are denied access to international capital markets, and oil prices continue to reach the new minimum level every day.

The salvation for Russia may be the decision taken at the meeting of Heads of Governments of the Shanghai Cooperation Organization (SCO), where at once six states in the region - Kazakhstan, Russia, China, Tajikistan, Kyrgyzstan and Uzbekistan, have expressed their willingness to abandon the US dollar.

As an illustrative example of the economic independence, Kazakhstan and China officially abandoned the dollar Dec.15. The President of Kazakhstan Nursultan Nazarbayev said that now Astana and Beijing will carry out all the mutual settlements of accounts in national currencies.

The main bankers of the two countries have already signed the agreement, and even concluded the first contract for 200 billion KZT, thus encouraging everyone else to follow suit.

Representatives of China pledged to invest in economic projects of the SCO countries tens of millions of ... dollars for now, so that the other participants would have no doubt and follow the steps of Kazakh colleagues without hesitation.

Undoubtedly, it will be one of the major political events of 2014 and will reduce tension among the exporters and importers.

The issue of increasing the payments in national currencies is included in the agenda of the International Banking Conference of CIS member states in Baku every year.

However, local experts believe that the transition to mutual payments in the single currency is untimely especially within CIS, since there is no economic base for that.

All national currencies in the region, especially, in the current realities, the Russian ruble are fairly weak. The share of the ruble in the world economy is very low, while dollar and euro have considerable share in Russian economy.

In general, it can be a political solution. However, for the present the purely economic feasibility of this initiative is far enough.

It should be noted that the ruble that was let to float freely from Nov.5, naturally started to affect the AZN/RUB currency pair: the exchange rate of Russian ruble to AZN dropped by 27.9 percent in price during this period.

In this regard, migrant workers from CIS countries are in a very deplorable situation. These migrants were sending 1,000 rubles to their families per month and now they feel the weakening of the ruble in their homeland as well.

Moreover, around $1 billion was transferred to Azerbaijan in 2009-2011, according to the official statistics of Russian Central Bank, while the unofficial statistics showed that this figure nears $2 billion.

As a result of the significant decrease in the number of Azerbaijani migrants in Russia, the amount of money transfers to Azerbaijan neared $600 million in 2013. The unofficial data also shows almost the same figure.

The decrease in the volume of money transfers from Russia to Azerbaijan throughout 2014 can be observed through one source as well: around $22.1 million was transferred to Azerbaijan through IBA-Express payment network in the first 11 months of 2014, while this figure equaled $55 million as of 2013. This is while the number of money transfers decreased by 20,000.

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