PAVEL TRUNIN: POLITICAL RISKS IN THE ECONOMY HAVE LARGELY INCREASED
Pavel Trunin, Head of the Center for Macroeconomics and Finance, Gaidar Institute gave an interview to the BUSINESS Online publication.
— The Central Bank of Russia is actively buying gold and it is not alone in doing so. Is the world moving to a new gold standard?
— I do not think so. Theoretically, it is possible, but not flexible enough. In my view, these processes reflect political risks that have substantially increased in the economy. Why has the Central Bank of Russia increased strongly the share of gold in its reserves, having reduced that of the dollar? Because there is a political conflict and it makes one think of the worst. If the US triggers a new wave of tougher sanctions against Russia after forbidding US banks to buy the new Russian debt, what will happen to Russia’s foreign currency reserves? The relations between China and the US are strained, too. China is the largest holder of the US public debt, but it has to think about the diversification of its reserves, too. So, gold as a historically reliable asset is getting popular. This situation is a reflection of political processes.
— Has the fight declared by Vladimir Putin to break dependence on the US dollar in the foreign trade settlements failed? The statistics do not show any breakthrough in it.
— It is very difficult to carry out the de-dollarization artificially. Any restrictions on settlements in US dollars by administrative means will lead to a situation where the indices of such settlements may decrease, but costs will grow substantially for the business which, even without that, is hit by falling profits, slow economic growth and other. Why are most settlements in the world carried out in US dollars? They do it so because it is the most convenient and the least expensive way of settlements. Settlements in national currencies should be stimulated and promoted, but it is to be done primarily by economic means. What is meant here? It is primarily the expansion and development of trade with our main partners, promotion of the role of the Russian economy in the world and speeding up of its growth. All these factors contribute to appreciation of the role of the rouble, but amid slow and small economic growth which is currently observed nothing of that kind happens and for this reason we do not see any particular growth in the share of the rouble in mutual settlements.
— The capital flight from Russia is proceeding at a record-high rate. According to the data of the Central Bank of Russia, in the first eight months of this year it increased by 30 percent. How can you explain it?
— There are two parts of the answer to this question. The first one: the figures in question should not be overestimated. The balance of payments is made in such way that there is a current account which is positive owing to the exports of energy commodities. In bookkeeping, it is opposed to the capital account which is negative in Russia and counterbalances the positive value of the current account. In total, with operations of the Russian Central Bank which is currently buying foreign currency for the Ministry of Finance taken into account, the balance is equal to zero. This is one part of the answer.
The other part of the answer is more pessimistic. Amid the growing isolation of the Russian economy from the global one and its slow growth, there are no particular incentives to invest in Russia. In addition to the above, there is a geopolitical issue, that is, sanctions which do not make the Russian economy more attractive.
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— I do not think so. Theoretically, it is possible, but not flexible enough. In my view, these processes reflect political risks that have substantially increased in the economy. Why has the Central Bank of Russia increased strongly the share of gold in its reserves, having reduced that of the dollar? Because there is a political conflict and it makes one think of the worst. If the US triggers a new wave of tougher sanctions against Russia after forbidding US banks to buy the new Russian debt, what will happen to Russia’s foreign currency reserves? The relations between China and the US are strained, too. China is the largest holder of the US public debt, but it has to think about the diversification of its reserves, too. So, gold as a historically reliable asset is getting popular. This situation is a reflection of political processes.
— Has the fight declared by Vladimir Putin to break dependence on the US dollar in the foreign trade settlements failed? The statistics do not show any breakthrough in it.
— It is very difficult to carry out the de-dollarization artificially. Any restrictions on settlements in US dollars by administrative means will lead to a situation where the indices of such settlements may decrease, but costs will grow substantially for the business which, even without that, is hit by falling profits, slow economic growth and other. Why are most settlements in the world carried out in US dollars? They do it so because it is the most convenient and the least expensive way of settlements. Settlements in national currencies should be stimulated and promoted, but it is to be done primarily by economic means. What is meant here? It is primarily the expansion and development of trade with our main partners, promotion of the role of the Russian economy in the world and speeding up of its growth. All these factors contribute to appreciation of the role of the rouble, but amid slow and small economic growth which is currently observed nothing of that kind happens and for this reason we do not see any particular growth in the share of the rouble in mutual settlements.
— The capital flight from Russia is proceeding at a record-high rate. According to the data of the Central Bank of Russia, in the first eight months of this year it increased by 30 percent. How can you explain it?
— There are two parts of the answer to this question. The first one: the figures in question should not be overestimated. The balance of payments is made in such way that there is a current account which is positive owing to the exports of energy commodities. In bookkeeping, it is opposed to the capital account which is negative in Russia and counterbalances the positive value of the current account. In total, with operations of the Russian Central Bank which is currently buying foreign currency for the Ministry of Finance taken into account, the balance is equal to zero. This is one part of the answer.
The other part of the answer is more pessimistic. Amid the growing isolation of the Russian economy from the global one and its slow growth, there are no particular incentives to invest in Russia. In addition to the above, there is a geopolitical issue, that is, sanctions which do not make the Russian economy more attractive.
You can get familiar with this material in full here
Friday, 25.10.2019