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The Volatile Russian Ruble

In: Business and Management

Submitted By MandyPitman
Words 928
Pages 4
Penn Foster
Economics 1
Project 050477

The Volatile Russian Ruble

The Russian ruble’s exchange rate from 2005 to 2010 was filled with its share of extremes when compared against the more stable United States dollar (USD). The United States was more developed, with a more experienced market economy that accommodated a managed floating exchange rate for their currency. Russia’s emerging market economy lacked the structure needed to provide stability to the ruble’s exchange rate due to inadequate monetary policies put in place by an inferior government and an overdependence on crude oil export prices for sustained economic growth. These collective differences are what set the dollar apart as a stronger currency than the ruble during this time period. In 2005, resource rich Russia was experiencing rapid economic growth attributed to a booming demand for crude oil. During this expansionary period, overall unemployment decreased, real wages began rising, and the poverty rate and gap began decreasing. Their economy was on a positive, uphill trend as oil prices kept raising. The ruble, which had been soft pegged to the U.S. dollar since 1995, was becoming stronger as it appreciated against other nations’ currencies. The United States, on the other hand, was contracting their economy in the face of those rising oil prices, war related debts, and devastating natural disasters. With the dollar threatening to depreciate in the open market, Russia’s monetary policy had to revolve around trying to manage the ruble’s exchange rate against that depreciating dollar instead of focusing on other monetary issues such as the demand-pull inflation from crude oil that showed no sign of slowing down.
Despite the threat of increasing inflation due to the rapid growth taking place in Russia, their GDP continued to increase through 2007. The Russian government took full advantage...

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