As soon as the cannons sounded, the "ruble crisis" returned.
On February 11, 10 days before Russia's military attack in Ukraine, the Central Bank of Russia held a meeting of financial policy decisions to raise the benchmark interest rate to 9.5%, and by the close of the day, the ruble's ratio to the dollar was:
77:1。
On February 28, a week after the war between Russia and Ukraine, the United States and Europe launched SWIFT sanctions, and the value of the ruble fell sharply. The Russian Central Bank once again announced an increase in the policy rate to 20%. As of the close of the day, the ruble-dollar ratio was:
101:1。
The bleeding ruble sped up and galloped, and a few reins could no longer hold the horse. On March 7, the ruble-dollar ratio was as low as 150:1, and so far it is 137.5:1.
In less than a month, the ruble depreciated by more than 80 percent. Leaving aside how the Russians feel about the sharp decline in wealth and rising prices, there are voices of "bottom rubles" everywhere in the country.
The idea is very easy to understand: the ruble has fallen to the bottom of the stampede selling, buy at this time, and when Russia recovers after the war, it will definitely lead to the appreciation of the ruble, and then sell it again, is it not a win?
01
Past lives and present lives
There is nothing wrong with throwing high and sucking low, the question is whether it can be copied to the end.
The ruble has also been beautiful. In the 1960s, the Soviet Union carried out currency reforms to counter the hegemony of the US dollar, and the ruble was directly pegged to gold, and 1 ruble was exchanged for 0.987412 grams of gold, with a ratio of 0.9:1 to the US dollar.
For more than 20 years, the ruble was worth more than the dollar. By 1987, 0.6 rubles could be exchanged for 1 dollar, which is the highest in the history of the ruble, although it cannot become the world currency like the us dollar, and the name of the "golden ruble" is at least proudly strong.
The year was also a turning point in the ruble's fate. In January 1987, the Plenary Session of the Central Committee of the Communist Party of the Soviet Union was held, which meant that the economic reform of the Soviet Union under Gorbachev entered the second stage. This is manifested in monetary policy, which is the surge in the circulation of rubles.
In 1987, the Soviet Union issued 6 billion rubles, nearly doubling compared to the previous decade. The following year the currency issuance tripled again to 18.8 billion rubles. Easing lasted until 1990, when the ruble-dollar ratio came to 1.8:1.
The market economy under Gorbachev's leadership was radical and ignored objective laws, and in 1990, the Soviet economy experienced its first post-war negative growth. On the one hand, commodity shelves are empty, and on the other hand, the stock of currency stagnation is as high as 500 billion.
Fast forward to 1991, when the Soviet Union was crumbling. In order to save the purchasing power of the avalanche of rubles, on January 23, the Ministry of Finance announced that from zero o'clock, all the 1961 editions of the 50 and 100 ruble banknotes would be invalidated.
Bundles of new rubles sealed in lead were buried in the wild and reduced to waste paper, still unable to stop the rubles from running wild on the road of depreciation. At the end of the year, the ruble-to-dollar ratio fell to 170:1, which was just the beginning.
Russian explorers found billions of abandoned rubles in the former Soviet Union
After the collapse of the Soviet Union, the Russian Federation inherited most of the inheritance. The collapsing socio-economy was in dire need of another reform, at a time when another historical sinner in the devaluation of the ruble: Russia's first president, Boris Yeltsin, began his performance.
Yeltsin appointed the young economist Heydar, a big fan of Western neoliberalism, as finance minister, and under his leadership, Russia used "shock therapy" to tear down and rebuild the economy.
The so-called "shock therapy" was originally the prescription prescribed by the American economist Sachs for inflation in Latin America. It means that under the impact of large-scale economic reforms, the social economy may fall into a temporary "shock", but it will eventually usher in a new life.
Specific to Russia, it refers to the complete eradication of the traditional economy and then the creation of a new market economy. Major measures include full liberalization of prices, large-scale privatization of state-owned assets, and fiscal policies to liberalize and tighten businesses.
In 1992, Russians bid farewell to decades-old low prices in the former Soviet Union. Commodity rush superimposed on economic reforms caused prices to soar, and the price of consumer goods soared 26 times compared with the previous year.
The ruble then depreciated sharply. A subway ticket of 0.05 rubles before 1992 required 2000 rubles to buy by 1997. At the end of the year, the ruble-to-dollar ratio reached a staggering 6010:1.
From 1987 to 1997, in just 10 years, the price of exchanging 1 dollar changed from 0.6 rubles to 6010 rubles. The Yeltsin administration's response was also simple and crude.
On the first day of the new year in 1998, the Russian Federation announced the issuance of a new ruble, 1000 old rubles convertible into 1 new ruble. The ruble's ratio to the dollar immediately fell to 6.01:1. This is the ruble we are familiar with.
But in the first 20 years of the new century, the ruble seemed to repeat itself in history, depreciating from 6:1 to 60:1 step by step. Who wouldn't want to ask:
Ruble, is there really a bottom?
02
What can I expect in the future?
The answer given by history is that the ruble is bottomless. Reality makes us have to wonder if the ruble has a future.
In essence, the ruble itself has no value, its value is given by the Russian government. The ruble therefore represents Russia's national credit, and its value is closely related to Russia's economic strength.
Let's start with the credit side.
In 1998, the Russians once again witnessed their wealth disappear with monetary policy changes, but they survived. The reason is that Yeltsin has promised three times in public that the ruble will not depreciate, and the new prime minister Sergei has firmly believed that the ruble is the "face of the country".
But whether the ruble can hold up the waist of politicians is hard to say. The economic situation at that time was that shock therapy worked, and the Russian economy did indeed go into shock, with economic growth of only 1.4 percent in 1997.
The economy is weak and the government cannot collect taxes. But in order to make up for the deficit and maintain the ruble exchange rate, the central bank naturally does not work to print money, and can only borrow money from abroad. At the beginning of 1998, Russia was burdened with $182 billion in external debt, or about 40% of GDP.
The roof leaked during the overnight rain. In 1996, the two-year-long War in Chechnya had just ended. The Asian financial crisis combined with OPEC production increases triggered the oil crisis, which fell from $23.50 a barrel to $10.6 from 1996 to 1998. Russia's already poor treasury is even worse.
On August 23, 1998, Sergei, who had been prime minister for only four months, was dismissed by Yeltsin. A week before Sergei stepped down, the Russian government announced to U.S. and European creditors that it would moratorium on all debt payments.
One of the five permanent powers, the nuclear power actually defaulted on its debts, which gave the international community a painful lesson, especially in the financial world, the global stock market is in a mess, of course, the ruble is certainly the most miserable. Within a month, the ruble depreciated to 20:1 against the dollar.
Russian President Boris Yeltsin
Looking at economic strength, after all, the government must also build on the economic foundation if it does not talk about credit.
Before the arrival of the new century, Yeltsin bid farewell to the Kremlin. On the occasion of his parting, he said to the last prime minister he had promoted, "Please take care of Russia." Putin, a former KGB agent and former federal security chief, came to Moscow empty-handed to do only three things:
War, war, or fucking war.
Putin is not a war maniac, but the terminally ill Russian economy can only take a hard shot: launch a second Chechen war to resolve civil unrest and clear the way for economic reform; fight the oligarchy and re-nationalize the lifeblood of the country's economy.
Strongman politics has brought unity and stability to Russia, which is a prerequisite for economic development. The ruble exchange rate also remained relatively stable: from 2000 to 2007, the value of the ruble 1 dollar slowly rose from 27.7 to about 30.
The Russian economy under Putin is growing rapidly, but under the stability and rapid growth, risks have also quietly emerged.
The first is the international situation. After Putin came to power, Russia changed its previous low-key national image and became tough under the guidance of the idea of "restoring its status as a great power", which inevitably clashed with the United States and European countries.
From the 2008 war in Georgia, the operations in the Ukraine crisis since late 2013 to the attack on Crimea in 2014. Every war is the biggest destabilizing factor in the ruble.
The second is Russia's deformed economic structure, the proportion of energy-related industries in the industrial system is nearly 70%, and the high returns of the oil and gas industry make the Russian economy dependent, resulting in a lack of capital investment in emerging industries.
A sound industrial system is a moat for currency exchange rates, and the opposite example is Russia: oil prices fall as soon as the ruble falls.
Therefore, the ruble has not failed to plummet, but if it wants to earn from the rebound, it is necessary to maintain good credit in the government bond market in the future, followed by stable oil prices, and finally embrace peace.
Looking at the current situation, if I still insist on copying the ruble, I can only respect, bless, and hope to earn.
03
Bottom-up value
The bottom ruble is of little value, the key is instability, and it is not the best opportunity we can find in the Russo-Ukrainian War.
The most intuitive manifestation is that major institutions have recently downgraded Russia's sovereign debt rating, believing that Russia is likely to default on its debt again. But Russia has a backhand move: allowing businesses and individuals to pay off the debts of unfriendly countries in rubles.
While maintaining international credit and reducing some inflationary pressures, Russia has not suffered losses. Creditors turn rubles into "waste paper" through SWIFT sanctions, and Russia uses "waste paper" to pay off debts, fair and just.
It is very reasonable for Russia to come up with such a countermeasure, after all, it has suffered a big loss.
In the 1980s, the Soviet Union loaned more than 10 billion rubles to India, when the ruble was still 0.9:1 against the dollar. After the collapse of the Soviet Union, Russia took over the debt, and India decisively repaid the loan with rubles that had depreciated hundreds of times.
The ruble is also the ruble, equally fair and just.
But from the perspective of history and reality, investing in rubles is really not a stable deal. After all, Banks such as Inkombank, Mosbusinessbank, SBS-Agro, and Most-Bank, which went bankrupt because of their investment in Russian government bonds, are still in their bones.
What is the asset that is really worth bottoming out? The Russian oligarchs know best.
In the era of "shock therapy", 500 state-owned enterprises in Russia with a valuation of about $200 billion were sold for 7.2 billion, and more than three-quarters of the oil resources were controlled by private hands.
For example, Yukos, which accounts for one-third of Russia's total oil production, Khodorkovsky bought 78 percent of its shares from the government for just $300 million. Two years later, Yukos went public with a total market capitalization of $7 billion.
Putin's number one opponent, the oligarch Khodorkovsky, became a prisoner of the order
The fruits of victory left over from the bloody struggle of the former Soviet Union were plucked by the oligarchs, and Putin certainly knew all about it.
Since the Putin government came to power, it has cracked down on the oligarchic economy through various means, regained control of 40% of the economy in the fields of natural gas, military industry, automobiles, new energy, aviation and other fields, and grasped the right to exploit oil in most areas.
Ordinary investors certainly don't have the energy of oligarchs or politicians, but they're not completely out of control.
After the outbreak of the Russian-Ukrainian conflict, Wall Street was very lively.
When the Russian stock market is temporarily closed, buy corporate bonds that have fallen to the bottom. Goldman Sachs, for example, took the lead in buying corporate bonds from mining companies such as Evraz Plc, Gas Industry AG and Russian Railways that matured in the next 2 years.
Shell, Europe's largest crude oil company, also bought 725,000 barrels of Ural crude oil, looking at the recent crazy oil prices, at least a net profit of $20 million.
South Korean retail investors are also acting, with net purchases of the only Russian stock ETF in China, "KINDEX Russia MSCI", reaching 28 billion won, and the net purchase of Russian related ETFs reaching 74.6 billion won.
Cutting the bottom while sanctioning can be described as a long-standing tradition on Wall Street. South Korea, of course, is well aware that in 1997, Soros almost single-handedly concocted the financial crisis in South Korea, and the IMF took advantage of the chaos to enter the market, and a large number of core enterprises that grasped the lifeblood of the economy were harvested by Wall Street.
It doesn't matter if you can't buy bonds and oil, at least buy something tangible. For example, after the Russian-Ukrainian conflict, Russian purchasing luxury goods suddenly caught fire. Although the ruble is cheap, it is a stable happiness to be accompanied by goods.
After all, even Russia itself trusts more in real value. Since 2005, the Central Bank of Russia has been frantically buying gold, and its gold reserves have increased from 386.9 tons to 2298.5 tons. In Russia's foreign exchange reserves, gold is 5 percentage points more than the US dollar.
Russia is not even a rare dollar, you still want to copy the ruble?
04
epilogue
The American economist and Nobel laureate Friedman famously said:
"There is something that creeps into society, and its harm is greater than that of thieves, robbers, murderers, arsonists combined, it robs money from everyone's pocket, and its name is 'inflation.'"
I am afraid that no one knows the meaning of "snatching money from the pocket" better than the Soviet people, but according to Gorbachev, in the referendum held in 1991, 113.5 million, or 76.4 percent, of Soviet citizens supported the preservation of the Soviet Union.
It has to be said that the Soviet people did have faith, and they believed in the state more than the paper money in their hands. So Chinese investors, instead of copying the ruble, believe in the renminbi.
Instead of investing in currencies, consider taking advantage of market turmoil and clinging to the core assets that represent China tomorrow.