What threatens the "free floating" of the ruble? Why does the Central Bank lower the ruble into "free float"?

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:46

The fact that the Russian economy has fallen into a trap, almost all experts have been saying lately. But what threatens the free floating of the ruble? It may seem to an ordinary citizen of Russia that such financial issues do not concern him, but in fact, this problem will affect ordinary residents of our country in the first place.

What is "free swimming"?

It is not surprising that today not only investors, but also ordinary Russians are actively monitoring the situation on the foreign exchange market. The ruble is floating freely, and this could practically mean that soon the majority of Russians will have a lot of financial problems. The fact that the national currency may become uncontrolled, it became known last year. Leading experts and financiers have repeatedly said that the Central Bank (CB) is ready for such a step. But what is “free floating” and how can it affect the material well-being of an ordinary person today? In simple terms, a similar situation happens in the foreign exchange market whenthe state simply ceases to regulate the exchange rate by foreign exchange interventions. That is, the government does nothing if the national currency starts to fall. The free float of the ruble is a risk for the Russian economy, but, according to most analysts, the development of such a situation in the near future is simply inevitable.

Reasons for the fall of the ruble

Because of what the Central Bank lowers the ruble into free float? In fact, there may be many reasons for making such a decision, but the main one is that the regulator is no longer able to support the national currency in the required amount. As you know, the ruble at the end of 2014 completely lost its position. Fortunately, most of the population managed to prepare for the fact that they will have to go through the economic crisis again. It is worth noting that in our country such collapses happen with an enviable frequency, and most Russian citizens are already accustomed to such drastic fluctuations in the financial market. The behavior of the ruble was also significantly affected by the geopolitical situation in the world, which only cost Russia the annexation of Crimea and the conflict in eastern Ukraine. The sanctions that were applied in response to these actions were the main cause of the crisis this year. Also, do not forget that the price of oil is extremely important for our state, which also fell almost twice last year.

Who benefits?

Why does the CBR lower the ruble exchange rate and what does it mean? It is quite clear that with such a development of events, the cost of the majoritygoods in our country will increase dramatically, and all this will have an extremely negative impact on the financial situation of average Russian citizens. What threatens the floating of the ruble to ordinary people? At least the fact that even basic necessities will rise in price. Considering that the financial situation of most Russians is completely unenviable, it can be assumed that the next economic collapse will be a real collapse for them. At the same time, it is quite profitable for the state itself to keep the ruble at the lowest possible levels. Everyone knows such a thing as export. Most often, Russia exports energy resources and weapons, for which, in fact, it receives a huge amount of foreign currency, because, as you know, today trade between states is calculated in dollars. So it turns out that while ordinary citizens are trying to learn how to live at an unfavorable exchange rate, the state earns the most on exports, because all the expenses of companies are calculated in cheap Russian rubles.

What threatens the ruble with freedom?

What can happen to the national currency if it floats today? First of all, of course, the market will become simply uncontrollable, which means that a huge number of speculators will reappear who want to make money. At the same time, the state will not be able to do anything at all, and ordinary citizens will receive not only lower wages, but also social benefits, such as pensions and benefits. Visually, the number of payments,of course, it will remain at the same level, but the Russians will be able to afford much less for this money. In general, the economy of our state is quite profitable from what is happening with the national currency today, and the owners of exporting companies are unlikely to ask themselves the question: “What threatens the ruble with free floating and how can this affect the population?” The faster the internal economy of the state begins to recover, the faster the national currency will become stronger, so for now ordinary citizens simply have no other choice but to learn to live in new conditions. How typical of our country, isn't it?

Beginning of 2015. Why did the ruble get stronger?

Despite the fact that most experts were sure that the national currency would be at low levels for several more years, the situation had changed dramatically by the beginning of 2015. The ruble learns to dive, having gone into free swimming, experts considered, but in reality everything turned out a little differently. In fact, the national currency of Russia is not yet ready to grow on its own, and the reason for such a sharp jump was the rise in oil prices. Black gold really gradually began to grow in price, and this was the main reason that the domestic ruble also began to grow stronger. But this does not mean that this will continue in the future. At the moment, experts assure that the ruble is practically independent of oil, and black gold, in turn, has so far stopped at certain levels. This means that while the situation on the currencythe market will remain extremely stable, but how long will it last?

What do you need to avoid the "free float" of the ruble?

We have already managed to decide what threatens the ruble with free floating, but can this be avoided today? Experts recommend that Russians do not panic and do not try, as at the end of 2014, to buy foreign currency for all their savings. All that the state needs to do today in order to avoid such a situation is to normalize all economic indicators. In words, everything sounds quite simple, but to implement it in practice is quite difficult. Until a few months ago, many analysts believed that the lifting of European sanctions would help Russia to stabilize. But everything turned out extremely negatively, and today Russia itself has extended its restrictions towards European states. All this complicates the situation on the foreign exchange market as much as possible and weakens the position of the ruble, of course. The Russians should be prepared for the fact that the Central Bank will stick to its previous position and decide to let the ruble float freely.

What should investors do?

Investors today also understand what threatens the free floating of the ruble, so they are trying to prepare as much as possible for this event. Professionals have already managed to send their savings to the most profitable financial directions, for example, experts recommend paying the attention of investors to the securities of Russian companies, which will soon begin to showpositive dynamics. And such financial instruments as an investment deposit or a securities deposit will help investors not only earn money, but also not waste time managing their assets. However, it is worth noting that working with securities requires certain skills and knowledge. Therefore, it would be useful for beginners to seek help from management companies or give preference to mutual funds. Recently, the precious metals market has shown itself well. The only place where it is risky and unprofitable to keep your savings today is banks, which, against the backdrop of a decrease in the key rate, are simply losing their attractiveness before our eyes. After all, it was bank deposits that first of all felt the threat of free floating of the ruble.

What will happen to the ruble in 2015-2016

So far, experts are in no hurry to guess what will happen to the Russian ruble in the next few years. The situation is really almost unpredictable, because there are too many factors on which the economy of our country will depend. Most importantly, both investors and ordinary citizens of Russia are well aware of the dangers of a free float of the ruble, and therefore are already actively preparing to avoid becoming victims of another economic collapse. At the same time, analysts especially emphasize the importance of the geopolitical situation and the crisis in the black gold market. What will happen to the ruble if the Central Bank allows it to float freely? In Russia, a severe economic crisis will begin again,which is likely to last several years. In any case, citizens of our country will not have to expect that the ruble will quickly restore its positions.