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Talk vs. Action: Russia’s Currency Dilemma Continues

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I’m a few days behind on this as I’ve been busy with other parts of this website, but there have been a number of developments since my post last week regarding how Russia discusses its currency maneuvers. The specific language used here is VERY important, so bear with me as I get nitpicky.

First, the facts as reported by various news outlets whose links are embedded within each bullet point:


  • Thedollar suffered an immediate decline following the announcement of thevarious plans to buy IMF bonds but then bounced back on Yosano’scomments.

“We are not going to significantly change the structure of ourinvestments. Ten billion is not a significant change (in currencyreserve holdings). A serious change is when we used to invest $100billion in Freddie Mac and Fannie Mae, but no longer do. In the nearestfuture, I do not see major changes in our policy in relation to thedollar.”

“I don’t see the dollar as being weak, I think the dollar has beentoday correctly valued by the market. We see a dollar which today isstronger than one year ago….so I don’t see today a weak dollar and Idon’t forecast that we would have to expect many changes in the comingtime.”

Now for some additional items buried deeper in the above stories that are worth noting:

“Asusual the market takes everything at face value and thinks everythingwill be implemented tomorrow. I don’t believe this will be done on asignificant magnitude over the next six to twelve months. It’ssomething they have in mind in the long term.”

  • Maxim Oreshkin, OAO Rosbank’s Research Chief, agreed:

“Thecentral bank has never stood out for making fast moves with itsreserves. If it changes certain groups it will happen smoothly.”

Here’s what did NOT happen regarding the currency issue while all of this was going on:

  • Nouriel Roubini, whose prescience regarding the current global economicdownturn has gained him household name recognition, offered hisprognosis for the dollar’s status as the world’s primary reservecurrency. And much like his consistently bearish outlooks for the pastnumber of years, he avoided naming a date or quantitative threshold forthe dollar’s pending doom. As the old saying goes, “even a broken clock is right twice a day.”
  • Nobody to my knowledge has directly addressed any principal actor’sulterior political motives in expressing support for the dollar. At alater date, I will take up this particular aspect of Russia’s currencydilemma in greater detail.
  • I have not posted any quotes from any principal actors who think thedollar will lose primary reserve currency status in the immediatefuture because I cannot find any but am absolutely open to any suchcommentary out there. “Principal actors” in this case meanspolicymakers or market participants.

Finally, some concluding comments and observations of mine:

Recent history is riddled with examples of unfulfilled promises fromgovernment officials owing to a variety of reasons. When it comes toeconomy-related promises, the current state of affairs is such thatwith new information needs being revealed daily, if not morefrequently, the value of any promise or intent is only truly realizedupon delivery. The more colloquial way of saying this: Talk is cheap.

Interpreting that notion in the Russian context is entirelysubjective. The Russian government may go back on its promise to buyIMF bonds; it may go back on its outlook of having full confidence inthe dollar; it may do some combination of both. Either way, it appearsvery likely that what government officials truly want for the Russianeconomy will not be executable from a practical standpoint. To theextent that this is the case, no matter what the government does toaddress the broad array of economic challenges it faces, it willinevitably fall short of getting it 100 percent right. But regrettableoutcomes can be minimized if the right questions are asked and coursesof action are determined more on the basis of rationality than oncatering to semi-informed politically palatable outbursts.