The drive to amass foreign currency leaves ruble undervalued and unstable
Mikhail Khazin is an extremely popular intellectual in Russia, who speaks mostly on economic and geopolitical matters.
His ideas are important because they influence thinking in Russia, and interesting because they are original.
They are far different from both the ideas that hold sway in the West, and the ideas the West imagines are attractive to Russians.
Our contributor The Saker was able to secure a long Q&A session with Khazin that was translated by a team of his volunteers.
This material originally appeared at The Vineyard of the Saker
As I have written elsewhere, today’s economic leadership of Russia - the Government and the Central Bank - consider the ruble exclusively within the framework of the Bretton Woods system; as secondary to the US dollar.
Accordingly, they hold the economy of Russia open to the world financial system, constrain investment opportunities for the ruble (by overstating the value of dollar-denominated loans) and rely on foreign investment.
In this situation, the stability of the ruble is determined by purely speculative factors of global markets: a price of crude oil, capital outflows, foreign investments, and a foreign capitalization of major Russian exporters.
However, the situation can change if we establish a domestic ruble investment system, create development institutions that will provide cheap ruble credit to the real sector of the economy, change the tax system from pure raw materials (with high value-added tax) to industrial, and begin to stimulate small and medium businesses engaged in innovation and production.
While the ruble is seen as secondary to the US dollar, all the above-mentioned suggestions are highly controversial.
As long as a main objective of any business in Russia is to increase its dollar capitalization, get a large dollar loan, place shares on the New York or London stock exchanges or sell something for export, the idea of selling oil for rubles will not be greeted with enthusiasm.
First, it is necessary to create a ruble-denominated financial infrastructure, then build a business that is oriented on this infrastructure, and only then start a strict policy for its separation from the dollar system. This in any case will require a major change of personnel of the Russian political elite.
Regarding the use of an alternative currency to the dollar, this has already been decided. There will be one, probably more than one. There is no other way to support investment, except by issuing regional currency.
It’s a completely different matter why the United States cuts off the branch on which it is sitting by stimulating the creation of alternative reserve currencies. But actually the answer is straightforward. They simply can’t conceive of their collapse.
However this belief is not simply a matter of idealistic ‘American Exceptionalism’ (We are the dominant, thus we shape history, not the otherway round), but it is also a belief held by the elite, as it forms a critical tool of social governance.
Furthermore, if we admit that the official economic doctrine simply doesn’t acknowledge the crisis (To be more exact, it is impossible for the theory to recognise the crisis as the theory lacks the terms of reference to describe the cause) then the crisis actually becomes inevitable, if not inescapable. Accepted economics themselves are founded on axioms that are driving the economy to catastrophe.
There is nothing more to say here. 'Those whom the gods want to destroy, they first make mad’.