The Russian currency is losing ground: in today's trading on the MICEX (Moscow Inter-Bank Currency Exchange) the dollar cost over 28 rubles for the first time since the spring of 2006.
Experts agree that the ruble is set to weaken further, and the question is only the depths to which the Russian currency will plummet. Pessimists are saying one dollar will cost 40 rubles next year, while bankers are offering borrowers who took out dollar-denominated loans to convert them into rubles.
Yesterday, VTB 24 Bank started refinancing dollar mortgages. This is not a unique case: other banks have been proposing this service to individual clients. Bankers say they want to minimize currency risks for their borrowers and also to hedge themselves against a possible non-payment epidemic due to dollar swings.
In November, the country's financial authorities practically announced the start of a gradual devaluation of the ruble. Within two weeks, the Central Bank broadened the ruble band twice in relation to the dual currency basket. As a result, the Russian currency began slipping quickly: since the middle of the summer the dollar has gained more than 16 percent, as have loans taken out in the U.S. currency.
Experts believe that between January-February 2009 the dollar will appreciate to 30 rubles, and the authorities will have to make up their minds whether to go ahead with the smooth devaluation of the ruble by drawing on the gold and hard currency reserves to support the Russian currency exchange rate, or depreciate the ruble sharply to 40 rubles per dollar. The future of the ruble, however, may not be so dim, and not because of the Russian financial authorities, but because of the turmoil in the American economy.
Some economists put down the fall's upsurge in the dollar to investors' attempt to safeguard their capital by investing it in the world reserve currency. Over the past four months the U.S. dollar has been steadily climbing and for at least the next two months the process will continue. But in the mid-term, high U.S. sovereign debt and a growing budget deficit might prompt investors to abandon the American currency.
The first to predict a possible downfall in the dollar was the well-known financial shark Jim Rogers. Citing his own sources in the government, he says that the American financial authorities are preparing not only to devalue the dollar but to send it crashing. The United States will need huge funds to address the financial crisis and most likely this will be outside borrowings. Serving large debts without cuts in budget spending (something the new Democratic administration is unlikely to do) and without increasing revenues (which is unrealistic at crisis time) is only possible at the expense of the dollar. Just a few days ago, UN experts and analysts of some financial companies forecast the dollar's weakening in a long-term perspective.
For Russia, the devaluation of the dollar carries some negative implications: after all, Russia holds 45 percent of its international reserves in dollars and a significant part of its Reserve Fund in American and European securities and currencies. Should the dollar collapse, Russia would lose a considerable part of its international reserves overnight.
Vlad Grinkevich
