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In 2014, the ruble went free floating. Let's figure out what this means, what the exchange rate depends on and why it is impossible to simply establish a fixed rate - for example, one ruble for one dollar.
What is currency?
Currency is the monetary unit of the nation state. But there are also collective currencies that are used not in one country, but in several. A striking example is the euro. It is the supranational currency of a group of European countries.
Few remember that the euro had a predecessor, the ECU. This collective currency was used in a group of European countries in 1979-1998, but it was used mainly for non-cash payments. The word "ecu" comes from the English European Currency Unit (European currency unit) and the name of medieval French coins - the very ones that d'Artagnan received for his yellow-red horse.
Sometimes the state uses the currency of another country on a par with the national one. For example, in Russia in the early 1990s, de facto, the ruble and the US dollar were used in parallel. In those years, everything was sold for dollars: both apartments and vegetables in the bazaar.
What is the currency rate?
The exchange rate is the value of the currency of one country in the currencies of other countries. It determines, for example, how much a dollar or a yen is worth.
The value of the dollar in rubles over the past 10 years.
What affects the exchange rate?
The price of a currency, like any product, is determined by supply and demand. For example, production is developing in the country, entrepreneurs need money, and they are ready to offer investors a good income. If foreign investors want to invest in these projects, they will need the local currency of the country. The demand for it will grow, which means that the rate will go up.
It also happens vice versa. For example, the government turns on the printing press to pay off domestic debts. The country's currency becomes too much, and its price - the exchange rate against other currencies - falls.
In reality, the exchange rate depends on many factors. Even political news affects him. But whether it will change and how much, determines the exchange rate regime that the country has chosen.
What are currency regimes and what is the regime in our country?
The exchange rate regime depends on the extent to which the state is ready to influence the formation of the exchange rate. If the state does not intervene at all, the exchange rate is called free floating. If at certain times the central bank of the country includes mechanisms of influence, the rate is called a managed floating rate, and if the state rigidly sets the rate, it is called fixed.
Floating exchange rates
It is determined only by market factors, the state practically does not regulate the exchange rate in relation to the currencies of other countries.
Managed floating exchange rate
The central bank controls the rate formation process. For example, it sets a currency band. Let's say this: a dollar should cost no less than 30 and no more than 35 rubles. If the exchange rate goes beyond the corridor - suppose the dollar rises to 38 or falls to 28 rubles - the state takes action. The central bank begins to buy or sell foreign exchange, that is, to intervene to correct the exchange rate. Thus, with the help of interventions, it is possible to change the ratio of supply and demand and, accordingly, return the currency price to the established corridor.
Fixed exchange rate
The toughest regime: the country's central bank pegs the exchange rate to the currency of another country or a currency basket, which consists of several of the most common currencies - for example, the dollar and the euro.
Until 1990, there was a fixed exchange rate in our country. For example, in the 1960s – 1970s, all people in the USSR knew that a dollar was worth 60 kopecks, no more and no less.
More information about exchange rates can be found in the mini-lecture by Oleg Zamulin, Dean of the Faculty of Economic Sciences at the Higher School of Economics.
In the early 1990s, our country entered a new phase of the economy, and it became impossible to fix the rate rigidly - the market began to determine it. At the same time, the Bank of Russia continued to control the exchange rate so that it did not make sharp jumps. At that time, Russia used various forms of maintaining the ruble exchange rate, including the currency corridor. Until in 2014 our country switched to a floating exchange rate regime.
Why did the exchange rate become floating in our country?
Because in the conditions of an open market economy and free international movement of capital, it is impossible to simultaneously manage both the exchange rate and inflation. If the central bank wants to control inflation, then the exchange rate must be regulated exclusively by the market. Many countries, including ours, have tried different regimes of monetary policy - both containment of the exchange rate and the absence of any guidelines.
Now the world is moving towards the fact that the central banks of different countries declare a certain level of inflation as a target and do not control the exchange rate. The Bank of Russia also focused on inflation, it manages it, not the rate. This monetary policy is called inflation targeting.
The Bank of Russia planned to switch to a floating exchange rate regime in 2015. But by November 2014, it became clear that it was necessary to switch to a floating exchange rate earlier. The economy at that moment experienced a double shock - from external economic sanctions and from the fall in oil prices. It was unreasonable to intervene (buy and sell currencies to maintain the exchange rate) during the crisis. There was a risk of spending all reserves of foreign currency to stabilize the ruble exchange rate, but the goal would not be achieved. Therefore, the ruble set sail a little earlier than planned.
The Bank of Russia monitors the situation on the foreign exchange market and can carry out transactions with foreign exchange to maintain financial stability. But under normal conditions, he does not do this, that is, he does not carry out interventions (buying and selling foreign currency) to control the level of the ruble exchange rate.
If the Bank of Russia does not control the exchange rate, then why does it set the official exchange rates?
By law, the regulator is obliged to establish the official exchange rates and inform about it.
The Bank of Russia determines official rates based on market quotations, which depend on supply and demand for foreign currency. Thus, the official exchange rate of the US dollar against the ruble is calculated on the basis of data on foreign exchange transactions on the Moscow Exchange. And the euro exchange rate is based on the official US dollar rate and the euro / dollar quotes in the information systems Thomson Reuters or Bloomberg.
The regulator publishes official exchange rates on its website on weekdays.
At the same time, the Bank of Russia does not determine or control how the official rates will be applied. It is up to people and companies to decide whether to use them at all. For example, companies can take these rates for their calculations, or they can use the exchange rates on the exchange at the time of the transaction.
But formal courses are important for government accounting. They are used, for example, when calculating budget revenues and expenditures.
How are the exchange rate and inflation related?
The exchange rate affects inflation, but the effect can be different, up to the opposite. The weakening of the exchange rate can accelerate inflation in the short term, and help to reduce it in the medium term. With the weakening of the domestic currency, imported goods rise in price. It becomes expensive to buy equipment or raw materials abroad. Therefore, the final product becomes more expensive. This is how the weakening of the exchange rate accelerates inflation. But there is also another side of the coin. For example, after the 2014 crisis, many Russian goods became cheaper than imported ones, and the demand for them increased. Then the weakening of the ruble helped some producers (especially agricultural ones) to expand production, to establish production, to keep and even reduce prices. Accordingly, in this case, the weakening of the exchange rate restrains inflation.
This is a simplified scheme, in reality everything is more complicated - inflation is formed under the influence of a whole range of factors.
What is currency?
Currency is the monetary unit of the nation state. But there are also collective currencies that are used not in one country, but in several. A striking example is the euro. It is the supranational currency of a group of European countries.
Few remember that the euro had a predecessor, the ECU. This collective currency was used in a group of European countries in 1979-1998, but it was used mainly for non-cash payments. The word "ecu" comes from the English European Currency Unit (European currency unit) and the name of medieval French coins - the very ones that d'Artagnan received for his yellow-red horse.
Sometimes the state uses the currency of another country on a par with the national one. For example, in Russia in the early 1990s, de facto, the ruble and the US dollar were used in parallel. In those years, everything was sold for dollars: both apartments and vegetables in the bazaar.
What is the currency rate?
The exchange rate is the value of the currency of one country in the currencies of other countries. It determines, for example, how much a dollar or a yen is worth.
The value of the dollar in rubles over the past 10 years.
What affects the exchange rate?
The price of a currency, like any product, is determined by supply and demand. For example, production is developing in the country, entrepreneurs need money, and they are ready to offer investors a good income. If foreign investors want to invest in these projects, they will need the local currency of the country. The demand for it will grow, which means that the rate will go up.
It also happens vice versa. For example, the government turns on the printing press to pay off domestic debts. The country's currency becomes too much, and its price - the exchange rate against other currencies - falls.
In reality, the exchange rate depends on many factors. Even political news affects him. But whether it will change and how much, determines the exchange rate regime that the country has chosen.
What are currency regimes and what is the regime in our country?
The exchange rate regime depends on the extent to which the state is ready to influence the formation of the exchange rate. If the state does not intervene at all, the exchange rate is called free floating. If at certain times the central bank of the country includes mechanisms of influence, the rate is called a managed floating rate, and if the state rigidly sets the rate, it is called fixed.
Floating exchange rates
It is determined only by market factors, the state practically does not regulate the exchange rate in relation to the currencies of other countries.
Managed floating exchange rate
The central bank controls the rate formation process. For example, it sets a currency band. Let's say this: a dollar should cost no less than 30 and no more than 35 rubles. If the exchange rate goes beyond the corridor - suppose the dollar rises to 38 or falls to 28 rubles - the state takes action. The central bank begins to buy or sell foreign exchange, that is, to intervene to correct the exchange rate. Thus, with the help of interventions, it is possible to change the ratio of supply and demand and, accordingly, return the currency price to the established corridor.
Fixed exchange rate
The toughest regime: the country's central bank pegs the exchange rate to the currency of another country or a currency basket, which consists of several of the most common currencies - for example, the dollar and the euro.
Until 1990, there was a fixed exchange rate in our country. For example, in the 1960s – 1970s, all people in the USSR knew that a dollar was worth 60 kopecks, no more and no less.
More information about exchange rates can be found in the mini-lecture by Oleg Zamulin, Dean of the Faculty of Economic Sciences at the Higher School of Economics.
In the early 1990s, our country entered a new phase of the economy, and it became impossible to fix the rate rigidly - the market began to determine it. At the same time, the Bank of Russia continued to control the exchange rate so that it did not make sharp jumps. At that time, Russia used various forms of maintaining the ruble exchange rate, including the currency corridor. Until in 2014 our country switched to a floating exchange rate regime.
Why did the exchange rate become floating in our country?
Because in the conditions of an open market economy and free international movement of capital, it is impossible to simultaneously manage both the exchange rate and inflation. If the central bank wants to control inflation, then the exchange rate must be regulated exclusively by the market. Many countries, including ours, have tried different regimes of monetary policy - both containment of the exchange rate and the absence of any guidelines.
Now the world is moving towards the fact that the central banks of different countries declare a certain level of inflation as a target and do not control the exchange rate. The Bank of Russia also focused on inflation, it manages it, not the rate. This monetary policy is called inflation targeting.
The Bank of Russia planned to switch to a floating exchange rate regime in 2015. But by November 2014, it became clear that it was necessary to switch to a floating exchange rate earlier. The economy at that moment experienced a double shock - from external economic sanctions and from the fall in oil prices. It was unreasonable to intervene (buy and sell currencies to maintain the exchange rate) during the crisis. There was a risk of spending all reserves of foreign currency to stabilize the ruble exchange rate, but the goal would not be achieved. Therefore, the ruble set sail a little earlier than planned.
The Bank of Russia monitors the situation on the foreign exchange market and can carry out transactions with foreign exchange to maintain financial stability. But under normal conditions, he does not do this, that is, he does not carry out interventions (buying and selling foreign currency) to control the level of the ruble exchange rate.
If the Bank of Russia does not control the exchange rate, then why does it set the official exchange rates?
By law, the regulator is obliged to establish the official exchange rates and inform about it.
The Bank of Russia determines official rates based on market quotations, which depend on supply and demand for foreign currency. Thus, the official exchange rate of the US dollar against the ruble is calculated on the basis of data on foreign exchange transactions on the Moscow Exchange. And the euro exchange rate is based on the official US dollar rate and the euro / dollar quotes in the information systems Thomson Reuters or Bloomberg.
The regulator publishes official exchange rates on its website on weekdays.
At the same time, the Bank of Russia does not determine or control how the official rates will be applied. It is up to people and companies to decide whether to use them at all. For example, companies can take these rates for their calculations, or they can use the exchange rates on the exchange at the time of the transaction.
But formal courses are important for government accounting. They are used, for example, when calculating budget revenues and expenditures.
How are the exchange rate and inflation related?
The exchange rate affects inflation, but the effect can be different, up to the opposite. The weakening of the exchange rate can accelerate inflation in the short term, and help to reduce it in the medium term. With the weakening of the domestic currency, imported goods rise in price. It becomes expensive to buy equipment or raw materials abroad. Therefore, the final product becomes more expensive. This is how the weakening of the exchange rate accelerates inflation. But there is also another side of the coin. For example, after the 2014 crisis, many Russian goods became cheaper than imported ones, and the demand for them increased. Then the weakening of the ruble helped some producers (especially agricultural ones) to expand production, to establish production, to keep and even reduce prices. Accordingly, in this case, the weakening of the exchange rate restrains inflation.
This is a simplified scheme, in reality everything is more complicated - inflation is formed under the influence of a whole range of factors.
