In the difficult period for a country, the term “devaluation” sounds more often from television screens. What is ruble devaluation in simple terms? This question is of interest to many Russians, especially those who pay a loan or want to maintain their savings in case of exchange rate fluctuations. Consider this concept in more detail, we will touch on the history of devaluation, the types of this process and how to maintain our accumulations in difficult economic conditions.
What does this concept mean?
Depreciation 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 currency 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 increases. For example, the last devaluation of the ruble in Russia occurred in the first half of 2014. The dollar against the ruble then dropped from 35 rubles to 31 for one American dollar. Following the revaluation (the concept of reverse devaluation, that is, denotes the strengthening of the national currency), devaluation began. This led to the fact that for the dollar they were already giving 60-65 rubles. The percentage of devaluation of the Russian ruble amounted to almost 100%.
But in general, it should be borne in mind that in this case this concept is quite extensible, since a similar 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 century. This indicates that something is going wrong in the country's economy.
The 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 occur in Russia for the first time? The strongest economy in the world seriously staggered 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. This was the heyday of the Russian economy, the market of the Russian Empire in 1913 included 170 million people (while the population of all of Europe did not exceed 300 million then). Then it was Russia that had all the prerequisites for becoming a locomotive of economic development in the 20th century.
But shortly after the outbreak of World War I, the free exchange of gold ceased. The state was forced to issue money that was not secured 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 Bolsheviks, things did not work out. The only action of the new government was to increase the money supply. The printing speed of new (already Soviet) settlement signs was such that it was necessary to reduce the money supply by 10 thousand times in 1922 and 100 times in 1923. By 1932, the Soviet ruble ceased to be quoted abroad and exchanged for gold.
The 1961 monetary reform is a combination of devaluation and denomination. Money was exchanged for new in a ratio of 10 to 1. The next reform - Pavlovskaya - took place already in 1991. This helped partially solve the problem of shortages in the commodity market. All bills of 50 and 100 rubles were subject to exchange, it was allotted for only three days, the limit was 1000 rubles. All other banknotes of this denomination “burned”.
From the very beginning of the new Russian ruble, the business was also not doing very well. So much money was printed in young Russia that it led to hyperinflation. The next reform is 1993. Only in 1997, hyperinflation was stopped. A denomination was held that brought the Russian ruble to its current state. So, denomination in the twentieth century totaled 500 trillion times. In the 21st century, the Russian ruble is experiencing relatively calm times.
Devaluation = inflation
You might think that devaluation is a bit of inflation. In both cases, the national currency depreciates. There is a common between these concepts, but nevertheless they differ in essence. So, inflation is called the depreciation of money within the state, and devaluation is a fall in relation to other world currencies. If a country is dependent 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 interrelated that a depreciation immediately provokes an increase in prices for products and services for the population.
What does the exchange rate depend on
The causes of the devaluation of the ruble and other monetary units must be sought in the natural laws of the economy. USA, UK, France, Germany have very strong economies. These countries are less dependent (compared to Russia) on the export of raw materials. But Russia is not the main raw material supplier 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 to the GDP of the Russian Federation is less than 10%. But not even 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 materials 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 rocket carriers for the United States). But the UK, for example, occupies 10% of the market in this sector. This is as much as the Russian Federation in the export of petroleum products. In Great Britain, this approach brings high incomes, since these are goods with high added value.
The situation is similar in other countries. The export structure of Western countries consists mainly of manufactured goods. That is, in case of a change in the cost of raw materials, their economies will suffer less. This is especially true if we consider the situation in the near future. Developed countries will suffer losses only if prices continue to fall or remain 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 petroleum products, including Russia, due to lack of funding large projects are frozen. Then freezing these projects reduces the cost of steel, grain, ore, and so on. As a result, export revenues of not only those countries that supply black gold are reduced.
But until the UK, for example, feels the influence of these negative processes, the exporting countries of petroleum products will already be subjected to them. The national currency of these countries will become unstable, it will change already under the influence of some forecasts, rumors and expectations. Therefore, the fall in oil prices negatively affects the economy of most developed countries, but it is the ruble that is depreciating.
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 country's economic situation in general. Artificial (as opposed to natural) already involves the intervention of official bodies or speculators. The government is usually not interested in depreciating the national currency, but speculators do not care, they can earn money both by depreciating the currency and by rising prices.
Open devaluation is usually associated with 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 the denomination. So it was in 1961 in the USSR. Formally, they simply replaced the old money with new, 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 is the following. In early 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 depreciation of the ruble. 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 drop in the cost of raw materials, and especially oil and oil products. This was discussed in detail above. But other processes can become the causes of devaluation. These are economic reasons and certain actions of major market players. The first set of reasons includes capital outflows, lower export prices, and a worsening economic situation in the state.
The second group of reasons is associated with macroeconomic factors. The government, reducing the value of the country's monetary unit, increases the attractiveness of its own goods. As an example, the actions of the US Federal Reserve, the Central Bank of Western European states and Japan. But it is worthwhile to realize that behind obscure economic terms lies the release into circulation of an unsecured currency.
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 world states). Now the external debt of most developed countries is at a very high level. This goes into the main problem of the financial regulator. In the future, this can 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 ruble devaluation is a negative phenomenon? Only in part. As a result of the devaluation, the public sector will nevertheless receive the expected income, employees of state enterprises and pensioners will not be delayed in salaries and pensions, enterprises will not go bankrupt and will continue to function. The decrease in purchasing power affects only goods imported from abroad, since they are sharply more expensive.
Devaluation is beneficial to domestic producers. Russian-made goods are becoming competitive with imported goods. Domestic production begins to grow, as a result, the ruble is again strengthening 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 for an apartment. What to do in such a situation? Consider this below.
How to predict devaluation
Ruble devaluation forecasts 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. In the conditions of the Russian Federation, one must always be prepared for the depreciation of a monetary unit. You can rely on the opinions of experts, but they do not always subsequently coincide with reality.
What to do with savings
The devaluation of the ruble is a threat that constantly hangs in modern conditions. But what should an ordinary person do in such a situation? How to save your savings? There are several sound behaviors:
- Try not to take loans in the currency of other states, and if they are already available, then try to convert them into rubles.
- Keep savings in different currencies. This will allow us to expect that at least one growth compensates for the fall of another. The classic scheme: a third of savings in dollars, a third in rubles, a third in euros.
- To take a loan (if this is still necessary) or make large purchases is only in the currency in which the person receives income.
- One of the best ways to insure capital is to buy property. Such investments do not bring a lot of income, but the risk of their loss is minimal. It is worth saying that now investments in elite real estate are more promising.
- Investing in gold is not so good. If you buy gold, and then immediately sell it, about 30% of the funds will be lost. To recoup investments, you need to wait until its value grows by 30%, and this can take years or even decades.
- For the purchase of foreign currency, states that export technology and industrial goods are considered reliable. These are Norway, Sweden, Japan, China, Switzerland.
