What is the devaluation of the ruble in simple words, forecasts

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

In a difficult period for the country, the term "devaluation" is heard from TV screens more and more often. What is the devaluation of the ruble in simple terms? This question is of interest to many Russians, especially those who repay a loan or want to save their savings during exchange rate fluctuations. Let's consider this concept in more detail, touch on the history of devaluation, the types of this process and how to save your savings in difficult economic conditions.

What does this concept mean

Devaluation is the depreciation of the national currency (that is, the Russian ruble in this case) in relation to the money of other countries and the value of gold. For an objective comparison, not only the main world currencies (dollar and euro) are taken, but also more than 15 national monetary units of other countries.

The concept of devaluation can be explained in another way. As a result of certain economic and political processes, the exchange rate of other currencies in relation to the national one rises. For example, the last devaluation of the ruble in Russia took place in the first half of 2014. The dollar exchange rate against the ruble then fellfrom 35 rubles to 31 for one US dollar. Following the revaluation (the concept of reverse devaluation, that is, it means the strengthening of the national currency), devaluation began. This led to the fact that 60-65 rubles were already given for the dollar. The percentage of devaluation of the Russian ruble amounted to almost 100%.

But in general, it should be taken into account that in this case this concept is rather extensible, since such a state of the economy in the Russian Federation has dragged on. The devaluation of the ruble in Russia has been observed with a certain degree of severity over the past quarter of a century. This indicates that something is going wrong in the country's economy.

History of devaluation in Russia

It is interesting to trace the fate of the national currency over the past century in order to understand the causes and consequences of the devaluation of the ruble. In what year did this phenomenon happen for the first time in Russia? The strongest economy in the world was seriously shaken in 1914, that is, with the outbreak of the First World War. Prior to this, the national currency was freely exchanged for gold at 0.7 grams per ruble. It was the heyday of the Russian economy, the market of the Russian Empire in 1913 included 170 million people (whereas the population of all of Europe then did not exceed 300 million). Then it was Russia that had all the prerequisites to become the locomotive of economic development in the 20th century.

But shortly after the start of World War I, the free exchange for gold ceased. The state was forced to issue money that was not backed by anything. So, if in 1914 there were 2.4 billion rubles in circulation, then in 1916 it was already 8 billion. This provoked serious inflation. With the advent of the Bolshevikseverything didn't work out. The only action of the new government was to increase the money supply. The speed of printing new (already Soviet) payment signs was such that the money supply had to be reduced by 10 thousand times in 1922 and 100 times in 1923. By 1932, the Soviet ruble was no longer quoted abroad and exchanged for gold.

The 1961 currency reform is a combination of devaluation and denomination. Money was exchanged for new ones in the ratio of 10 to 1. The next reform - Pavlovskaya - took place already in 1991. This helped to partially solve the problem of shortage in the commodity market. All bills of 50 and 100 rubles were subject to exchange, only three days were allotted for this, the limit was 1000 rubles. All other banknotes of this denomination "burned".

From the very beginning of the new Russian ruble, things didn't work out very well either. So much money was printed in young Russia that it led to hyperinflation. Another reform - 1993. It was not until 1997 that hyperinflation was brought to a h alt. A denomination was carried out, which brought the Russian ruble to its current state. Thus, the denomination in the twentieth century totaled 500 trillion times. In the 21st century, the Russian ruble is experiencing relatively quiet times.

Devaluation=inflation

You might think that devaluation is something like inflation. In both cases, the national currency depreciates. There is something in common between these concepts, but nevertheless they differ in essence. So, inflation is called the depreciation of money within the state, and devaluation isfall against other world currencies. If a country depends on imports, then devaluation usually leads to inflation. This economic mechanism is explained in more detail below. At present, in Russia, these phenomena are so strongly interconnected that the depreciation immediately provokes an increase in prices for products and services for the population.

What determines the exchange rate

The reasons for the devaluation of the ruble and other monetary units must be sought in the natural laws of the economy. The USA, Great Britain, France, Germany have very strong economies. These countries are less (compared to Russia) dependent on the export of raw materials. But Russia is not the main supplier of raw materials for the West. The sale of petroleum products in the national economy accounts for less than 30% of exports. Thus, the export of oil and oil products in Russia's GDP is less than 10%. But even not such a total dependence on the sale of black gold greatly affects the stability of the Russian ruble.

Other developed countries do not rely on raw material exports, but on the supply of high-tech services and goods abroad. Russia is also engaged in the sale of weapons (second place in the world after the United States) and high-tech goods and services (sale of launch vehicles for the United States). But the UK, for example, holds 10% of the market in this sector. This is the same as the Russian Federation in the export of petroleum products. In the UK, this approach brings high incomes, since these are goods with high added value.

The situation is similar in other countries. Structureexports of Western states consists mainly of manufactured goods. That is, in the event of a change in the cost of raw materials, their economies will suffer to a lesser extent. This is especially true if we consider the situation in the short term. Developed countries will suffer losses only if prices continue to fall or stay low for a long time. But the negative consequences for the West in this case are medium and long-term.

Here you can trace the whole chain of events. First, low prices reduce the income of exporters of oil and oil products, including Russia, due to a lack of funding, large projects are frozen. Then freezing those projects lowers the cost of steel, grain, ore, and so on. As a result, not only those countries that supply black gold are reducing export earnings.

But before the UK, for example, feels the impact of these negative processes, the oil exporting countries will already be subjected to them. The national currency of these countries will become unstable, will change already under the influence of some forecasts, rumors and expectations. Therefore, the fall in oil prices has a negative impact on the economies of most developed countries, but it is the ruble that depreciates.

Types of money devaluation

The devaluation of the ruble and any other national currency can be open or hidden, natural or artificial. These species are often intertwined. The natural depreciation of money occurs against the background of several macro- and microeconomic factors, the economic situation of the country in general. Artificial (as opposed to natural) already involves the intervention of official bodies or speculators. The government is usually not interested in the depreciation of the national currency, but speculators do not care, they can earn money both on the depreciation of the currency and on the rise in price.

Open devaluation is usually associated with the decisions of the Central Bank of the Russian Federation or other official bodies. This happened, for example, in 1998, when the Central Bank decided to devalue the ruble and announced this to the population. A similar thing happened in Kazakhstan in 2014. On February 11, the National Bank announced the devaluation of the currency. In some cases, devaluation occurs along with denomination. So it was in 1961 in the USSR. Formally, they simply replaced the old money with new ones, but objectively, the gold content of the ruble and the exchange rate fell sharply.

Hidden devaluation is not accompanied by official decisions of the government or the Central Bank. An example can be given as follows. At the beginning of 2017, the Ministry of Finance of the Russian Federation officially announced the purchase of foreign currency. Consciously, the goal of depreciating the monetary unit was not pursued, but the appearance of such a large player buying up dollars led to a hidden fall in the ruble exchange rate. This devaluation of the ruble in Russia was not so noticeable to the average person.

Reasons for devaluation

Recently, the main reason for the devaluation is just the fall in the cost of raw materials, and especially oil and oil products. This was discussed in detail above. But other processes can also become the causes of devaluation. These are economic reasons andcertain actions of major market players. The first set of reasons include the outflow of capital, the decline in export prices, the deterioration of the economic situation in the state.

The second group of reasons is related to macroeconomic factors. The government, by reducing the cost of the country's currency, increases the attractiveness of its own goods. An example is the actions of the US Federal Reserve, the Central Bank of Western European countries and Japan. But it is worth realizing that behind incomprehensible economic terms lies the issuance of an unsecured currency into circulation.

An important consequence of such actions is an increase in the global debt of all participants in the process (the map above presents statistics on the external debt of the world's states). Now the external debt of most developed countries is at a very high level. This turns into the main problem of the financial regulator. In the future, this may lead to a global inflationary shock, the only question is the timing of the start of the process.

Who benefits from the fall of the ruble

It seems that the devaluation of the ruble is a negative phenomenon? Only partly. As a result of devaluation, the public sector will still receive the expected revenues, employees of state enterprises and pensioners will not be delayed salaries and pensions, enterprises will not go bankrupt and will continue to function. The decrease in purchasing power is only reflected in goods imported from abroad, as they rise in price sharply.

Devaluation is also beneficial for domestic producers. Russian goodsproduction becomes competitive with imports. Domestic production begins to grow, as a result, the ruble strengthens again against the dollar. Of course, there are victims in this process. These are those who have a loan in dollars or euros, including a mortgage on an apartment. What to do in such a situation? Consider it below.

How to predict devaluation

Forecasts of the devaluation of the ruble are only forecasts, it is impossible to predict this process with 100% accuracy. Many factors lead to this, including those that cannot be controlled. For example, speculation in the foreign exchange market. There is only one conclusion. You must always be prepared for the depreciation of the monetary unit in the conditions of the Russian Federation. You can rely on the opinions of experts, but they do not always coincide with reality later.

What to do with savings

The devaluation of the ruble is a threat that constantly looms in modern conditions. But what should an ordinary person do in such a situation? How to save your savings? There are several he althy ways to behave:

1. Try not to take loans in the currency of other states, and if you already have them, then try to convert them into rubles.
2. Keep savings in different currencies. This will allow you to count on the fact that at least one growth compensates for the fall of the other. The classic scheme: a third of the savings in dollars, a third - in rubles, a third - in euros.
3. It is worth taking a loan (if there is still a need for it) or making large purchases only in the currency in which a person receivesincome.
4. One of the best ways to insure capital is to buy real estate. Such investments do not bring a lot of income, but the risk of losing them is minimal. It is worth saying that now investments in luxury real estate are more promising.
5. Investing in gold is not so good. If you buy gold and then immediately sell it, you will lose approximately 30% of your funds. To recoup the investment, you need to wait until its value grows by 30%, and this can take years or even decades.
6. For the purchase of currency, states that export technology and manufactured goods are considered reliable. These are Norway, Sweden, Japan, China, Switzerland.

Forecast for the current year

Will there be a devaluation of the ruble in Russia? This question can be answered with certainty in the affirmative. Of course, the Russian currency is waiting for devaluation, the question here is rather in the timing, and not in the very fact of this economic process. Many expected the devaluation of the ruble after the elections, but experts said that the depreciation is unlikely to happen. And so it happened. We can say that there will definitely not be a sharp fall in the ruble. The devaluation of the ruble in 2018 in Russia is an unlikely phenomenon. Experts suggest that the national currency will even strengthen to 52.5 rubles per dollar during 2018.