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Russian Ruble Crisis

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Submitted By pr22
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This discussion in turn boils down to the question “what is globalization?” According to me globalization is a word which has its origin from the process of transformation from self-sufficient civilizations to modern countries having specializations and doing trade. Globalizations finding its way back from 3000BC to the most recent times; it can be defined in various ways depending upon time. Gunder Frank’s theory of dependency explains it all. Globalization was always need driven, more was the need more was globalization in terms of trade, people, colonies, power, labor, etc. so it can be said that in a world of self-sufficiency globalization dies, only when the markets are volatile, globalization has its pace and when a particular segment becomes saturated in every economy there would be no exchange of this good or service or technology from one another and the scope for globalization ceases. When each country has a holiday destination like Miami nobody would be ready to come all the way spending more money. This is very much a reason for more south to south trade and south to north trade rather than north to south. With this transition or reform in the economic flow we can say the world is being pulled apart.

The question “the world is still not flat?” is a comparative term and drawing back the lines to the 3000BC, I would say the world is flat.

Russia is a young economy with great scope of development. After its economic reform in 1999 it faced a huge inflation because of improper regularization schemes, much of the nation’s wealth has been concentrated in hands of very few individuals which gave its name as land of billionaires. It has abundant natural resources like oil and metals which accounted for 70% of its exports and 40% of its GDP. It was listed as fastest recovering economy by IMF during 1991 -2000 which was mostly because huge disposable income earned by exporting Oil, But because of western sanctions to Russia in the Ukraine issue, it lost market confidence and lost many FDI’s and thanks to the falling oil prices from 120$ a barrel to 50$ a barrel hitting it with irrevocable losses.

Political Russia’s market and leaders who are new to the free capital markets have largely worked on inflation target and used most of its disposable income generated from exports to accumulate currencies of different nations rather than reinvesting in the economic diversification to substantiate the long-term economic because of the leaders political interest and the central banks inexperience to assess the credit risk in commercial lending unlike USA

To recover immediately Russia can offer high interest rates to regain the credibility from the corporates or at least stop them from moving out but this can happen only through few financial restrictions which would in turn push the nation’s growth several years back. But if Russia allows the floating inflation rate to prevail most of the corporates would move out as there would be no consumer market for costly goods and it can invest in its mid-size and small size manufacturing facilities and subsidize the equipment cost initially through stringent banking norms which would diversify the economy and reduce the dependency on oil and metal exports rather than trying to regulate the inflation rate by selling the existing gold

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