The fall of rouble: A crisis of Confidence By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

December 22, 2014 | Posted by bobbysrinivasan << back to blog

An earlier American President said that if you want to destroy a country, you don’t need to go for a war. With that country you just destroy their currency through trade embargo, competitive devaluation and unfair competition. The current situation in Russia fits this description perfectly. The Russian rouble which began the year with 32 to a dollar has now hit 73. This is a drop in value of over 60 percent. Any such drop regardless of which country it is, will bring about crisis of confidence. Countries trading with Russia will be worried about whether the country will renege on all their commitments. Already indications to that effect is present to-day.

Generally, countries which face declining currency value will push up the basic interest rate to shore up its value. Russia pretty much did that. The central bank of Russia pushed up their key rate from 10.5 to 17 percent. Even after the rise in interest rate, the rouble kept dropping in value. How come no country is helping Russia to shore up its currency? Here are possible answers.

Russia invaded Ukraine, their neighbouring country and took over a part of it. They incited the people of Russian origin there and supported them with money and weapons. Ukraine sought the global help. The euro zone countries responded with limited trade embargo.
Russia has been openly supporting the ISIS Levant movement which wants to create a caliphate and bring back the glory days of ottoman empire. This movement a sunni based is currently busy killing the Shias and the Christians in that region. America warned them of bad consequences. Russia totally disregarded it. Now America is forcing all its friends to fight against the Russians.
Russia, one among the emerging economies needs all the trade contacts to keep its economy growing. Currently imports from them are almost banned by many countries. Their major source of revenue namely export of oil is bringing in so little money. The crude (WTI) which was selling around $ 115 a barrel a year ago is currently trading at $ 54. America decided to destroy them through pumping the oil from the shale. Currently it is producing close to 10 million barrels a day. They are even prepared to export oil next year and destroy the price discovery process completely.
Through this process, Russia will face bankruptcy. Their foreign debt will not be honoured. Basically many countries are ganging up together to break Russia.

The question now is whether this is a good strategy. The leading economists think that this will break the back of that country and soon expect food shortages will arise creating serious unrest. What if a person like Stalin emerges on the scene and terrorize the innocent Russian citizens? Is the history repeating itself? Let us wait and watch.

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